Not sure what to do with your tax refund?
The good news is that you can spend the money however you’d like. The bad news is that you might waste it and the money could be gone as quickly as you received it. No matter what you do with the money, it’s important that you use it wisely and fully maximize its potential.
Here’s a great infographic on how you can be smart about your refund (courtesy of the US Tax Center).
Here are a few ways to maximize your tax refund:
Take a Vacation
Pack your bags, kids! We’re going on a road trip.
A vacation is a great way to spend your tax refund. You’ll be motivated to work hard during the year when you know it’ll all pay off with a vacation. It doesn’t matter how much your tax return is because there are plenty of affordable vacations that cost the same price as the average tax return.
You should use your tax refund to reward yourself for your hard work. Give yourself a nice vacation so you can relax and have a great time.
It’s never too late to learn a new skill, especially if it’s something you’re passionate about.
Use your tax refund to take a course in something you’re interested in. Maybe you enjoy watching movies, so you want to take a class on film production. Perhaps you want to become better at cooking. This is your opportunity to try something you always thought you’d enjoy. You can also learn a skill that relates to your job, which could lead to a promotion or new opportunity in the future.
Create an Emergency Fund
You might feel inclined to immediately spend every last dollar of your tax refund. If you don’t need anything, then save the money for emergencies.
Life is unpredictable. You never know when you might get sick or lose your job. You should always have money saved just in case something happens where there’s no money coming in. Create an emergency fund and make sure you have six to nine months worth of savings that will be ready when you need it. You’ll be tempted to pull money out of this fund when you want to purchase something, but try to refrain. Your future self will thank you.
Pay Off Credit Cards
Getting your tax refund might seem like the perfect opportunity to book a vacation. However, if you’re in debt, you should use this money to pay off your credit cards.
Paying off credit card debt with your tax refund will only help you in the long run. You will improve your credit score and secure today’s low rates. You’ll also save money on interest as time goes on. Don’t throw away this money on something luxurious when you can pay off some debt and sleep better at night.
Open an IRA or Roth IRA
If this is your first tax refund, then I’m sure retirement isn’t on your mind. However, the earlier you start saving, the better off you’ll be.
A Roth IRA is a retirement plan where you pay taxes for each investment you make, but you aren’t taxed when you take money out. There is a limit to how much you can put into this account each year, which is around $6,000. This is a perfect way to spend your tax refund and have it benefit you in the future.
It’s Your Choice
There is a lot you can do with your tax refund. If there’s a vacation that you really want to take, then go for it. If you don’t have any ambition to spend your refund, then save it for the future. The choice is yours!