Before you let your tax refund burn a hole in your pocket, give the money a purpose. Think about your personal financial situation and how you can make the most of your refund.
1. Start or Increase Your Emergency Fund
When things get tight, an emergency fund can ease major financial stress. Good practices suggest building your emergency fund up to 6 to 8 months of your salary and your refund to make a significant deposit to your emergency fund.
2. Pay Off High-Interest Debt
After establishing an emergency fund, the next best thing you can do with your tax refund is reduce or eliminate any high-interest debt that you’re carrying.
3. Spend It On Something You Need
Make the most of your refund by taking care of something important you've been delaying, like car repairs or dental work.
4. Make Home Improvements
Do you need a new roof? Is your kitchen outdated? Could new energy-efficient appliances lower your utility bills? Home improvement projects can immediately increase the value of your property while simultaneously making your home more comfortable.
5. Invest In an IRA
Depending on your income level, goals, age, and whether you have already fully funded your tax sheltered accounts, using your tax refund to get a head start on IRA contributions can be a great move.
6. Donate to Charitable Causes
On a tight budget, making charitable donations can unfortunately slip down on your list of priorities. Your refund gives you a chance to give a little back.
7. Spend It On Something You Want
You saved all year, and now you’ve earned the right to splurge a little bit. Don’t feel guilty about using the extra cash for a summer vacation or to treat your family to a nice dinner.