How to Make the Most of Your Tax Refund

closeup of young African-American woman using a calculator, glasses, taxes, tax return, tax refund

Waiting on your tax refund can get your wheels spinning with all the exciting plans for how you can spend it. It’s natural to want to reward ourselves when we receive our tax refund, an annual or unexpected bonus, or a commission payout. Splurging on a large purchase may seem justified, but remember: this is your money that you worked hard for. It deserves the same responsible management as any other income. Having a plan for your money helps you make the most if it. Here are some ways you can use your tax refund to maximize your money:

Put Money in Savings

It’s never a bad idea to bulk up your savings account! The additional funds you put into it now can make a big difference in the future, especially if you earn dividends on your account. You can add to your savings account, or open a Money Market, IRA, or Certificate account. We have a variety of savings options to help your money work for you.

Kick-Start Your Emergency Fund

Your emergency fund should have enough money to cover you in case of a financial setback like unexpected medical bills, car repairs, or unexpected job loss. While the recommendation is to have 3-6 months of living expenses saved up, that amount can seem daunting when you’re starting from nothing or very little. Using your tax refund is a great way to get your emergency fund started, or give it an extra boost to get you closer to your goal. Our Super Saver certificate is the perfect start to your emergency fund. It has higher dividends so your savings grow faster, plus one penalty-free withdrawal in case you’re faced with unexpected expenses.

Pay Off Debts

One of the most financially responsible choices you can make with your tax refund or other extra money is to use it to wipe out debt, especially high-interest debt like credit card balances or student loan debt. Eliminating debt not only relieves you from monthly payments, thus allowing you to put those funds back into your monthly budget; it also allows you to save up to hundreds or even thousands of dollars over time in interest payments. If you have multiple student loans or credit cards with high balances, start by paying off the one with the highest interest. Then once you get that one paid off, it will be easier to pay off your other debts faster. Even if you can’t pay it off completely, pay it down as much as you can. Every bit helps in reducing your debt and saving you money.

Invest in Your Home

Depending on how sizable your refund is, you could use it to pay for a big project in improving your home, such as refinishing the floors or remodeling the kitchen. Using your extra money for a home improvement project is like a hybrid of spending and investing. You’re using the money for something you enjoy and will directly benefit from right away, and it improves the value of your home which also increases its resell value if the time comes to sell your home in the future.

Start Shopping for a New Car

If your current car is starting to get older or doesn’t fit your needs anymore, your tax refund could be the first big step towards upgrading to something better. Car shopping before you are in a position where you need to buy a new car right away gives you the time to research the best car for your needs, find a great deal and secure the best financing available. If you find what you’re looking for and you’re ready to buy now, you can put your tax refund towards your down payment to help you save even more.

Save Some to Treat Yourself

After all, it is your money that you worked hard for. Just because it doesn’t serve you to spend it all on non-essential or luxury purchases, doesn’t mean you shouldn’t set aside some for fun. Allow yourself to indulge in a small reward as a thank you to yourself for disciplined money management with the rest of your refund. Take yourself out to a nice meal, go see a movie, buy concert tickets, get some new clothes, put it toward a vacation, or some other special experience. Make it something you enjoy. You earned it!

No matter how you choose to spend your tax refund or any other extra money you receive, it’s important to always have a game plan. Take time to figure out which of these options will help you make the most of your money, and commit to your goals before the funds hit your account. Our friendly and helpful staff is always here to help you make the right financial decisions. We’ll work with you one-on-one to determine which of our savings options is right for you, and help you develop a strategy for responsible money management. Give us a call to learn more about how Robins Financial can help.