6 Smart Ways to Spend Your Tax Refund

Spend your tax refund in ways that matter with this list of 6 smart ways to spend your tax refund.

Tax refund season is in full swing, and with it comes a lot of hard-earned cash going back into the hands of taxpayers. With 2017’s average refund of $2,895 for nearly 80% of the nation, that offers a good chunk of change and opportunity for ways to spend your tax refund.

No matter how you chose to spend your tax refund in the past, it’s easy to feel like the money came in and went right back out without ever really having anything to show for it.

We at CFSC would like to help you get the most out of your tax refund this year. Now that we’ve shared 5 easy steps for creating a budget, we’ve compiled a list of 6 smart ways to spend your tax refund so you can have something to show for it this time around.

1. Build Your Emergency Fund

If there’s anything that’s certain, it’s that nothing is certain. Emergencies always arise. Cars break down. Water heaters go out in the house. Unexpected trips to the hospital happen. When emergencies occur, it can easily put us in a financial bind. That’s where your emergency fund comes in.

An emergency fund should have, at minimum, 3-6 months worth of pay. While this may sound like a lofty goal, it’s one that will protect you when the times comes.

Your tax return may not be enough to fully fund your emergency fund, but at the very least, it will get you a lot closer than you are today. When you choose to spend your tax refund on building your emergency fund, you’ll be thankful you did when the unexpected happens.

2. Pay Down Credit Card Balances

Another way to spend your tax refund is to pay down credit card balances with high interest rates. High interest rates keep you spinning your wheels and prevent you from being able to pay off your debt sooner.

Find your credit cards with an interest rate of more than 10%, and start paying them down. As a rule, you should always pay down the highest rate first, and if you pay one off, cut it up. This protects you from paying that high interest rate on your purchases with that card again.

Before you close that high interest credit card you just paid off with your tax refund, make sure to read the do’s and don’ts of closing a credit card.

3. Chip Away at Principal Balances

Student loans. Car loans. Mortgages. These all have something in common: your payments apply towards both the principal balance as well as the interest. If you want to cut down on the total interest you’ll pay over the life of those loans, you’ll want to spend your tax refund on chipping away at those principal balances.

Use your tax refund to apply a lump sum payment to the principal balance of one or more of your loans. But be careful: you must make sure to specify it is a payment on the principal balance only.

4. Fund a Roth IRA

Did you know that in order to generate about $40,000 per year after retirement, the average person needs to save $1.18 million?

That number can sound frightening!

The good news is: a Roth IRA is the perfect place to start investing. Roth IRAs are individual retirement accounts that allow tax-free withdrawals after the age of 59 ½. There is a limit to how much you can place into your Roth IRA account each year: $5,500.

Spend your tax refund on saving for your future, and start funding a Roth IRA today.

5. Prepare for the Holidays

Yes. We know. Christmas is a long way away. However, we also know that every year, majority of Americans struggle with the financial burdens that come with purchasing gifts during the holiday season.

Spend your tax refund making sure this year’s holiday season is one you don’t have to worry about financially, and open a savings account specifically for your holiday fund. Now, you can go into the rest of the year knowing you don’t have to worry during what is supposed to be considered the happiest time of the year.

6. Invest in You

You worked hard all year long, and you’re about to get something back for it. While we recommend choosing to spend your tax refund on any of the above first, we also know how the opportunity for a recharge can propel someone through the rest of the year.

It doesn’t matter what it is, but find a way to invest in yourself. We all enjoy rewards of a job well-done, so consider spending your tax refund in a way that rewards you.

Here are some ideas:

  • Take a vacation
  • Pay for an annual spa membership
  • Update your work wardrobe
  • Purchase an annual gym membership
  • Fund your hobby

No matter the ways you choose to spend your tax refund this year, make sure it ultimately gives something back to you in the long run.

At CFSC, we offer tax direct deposit as well as prepaid debit cards for tax returns that make it easy to handle when you decide where you want to spend your tax refund.

Have a paper refund check? No problem! Find your nearest check cashing place at CFSC, and our staff members will be happy to assist you with our check cashing services so you can be on your way quickly and with cash.