Every year many Americans anxiously anticipate the arrival of their tax return, dreaming of how to spend their funds. While the smart decision would be to save for a rainy day, it’s tempting to want to spend it frivolously. However, setting it aside in a savings account isn’t the only smart money move you can make. So, if you’re contemplating the best way to spend your return, here are a few suggestions.
PAY OFF HIGH-INTEREST DEBT
It’s no surprise that high-interest debt can chip away at your monthly budget. So, if you have high-interest credit card debt, paying it off is one of the best ways to spend your tax return. If the money from your return doesn’t cover the entire balance, try making a debt repayment plan to accelerate your debt repayment.
CONTRIBUTE TO AN EMERGENCY FUND
If you want to sleep better at night knowing that you can afford unexpected expenses, you may want to use your tax refund to contribute to an emergency fund. Ideally, you’ll want to have at least three to six months of your expenses set aside to cover any sudden costs. From needing new tires on your car to hiring a plumber to fix a leaky pipe, you never know when you will need to pay for an emergency expense.
PURCHASE A BIG-TICKET ITEM
Have you been dreaming of getting Invisalign or taking a trip to South Africa to swim with great whites? Whatever you dream about, use your tax refund to open a savings account to achieve one of your lifelong goals. Since the average tax refund was $2,640 in 2019, you may have enough to open a high-interest savings account that could potentially yield as much as 2% interest.
GIVE YOUR HOME A MAKEOVER
Your home is your safe place and your sanctuary. Why not invest your tax refund into giving it a little TLC? For example, try adding some curb appeal by planting flowers, painting your door, buying a new entry mat, and placing some potted plants next to your entryway. You can completely transform the look and feel of your home by adding a few simple touches. Whether you’re considering selling or staying put for a while, any investment in your home will make it more attractive for the next buyer.
INVEST IN YOURSELF
Another great way to maximize your return is to invest in yourself. Since you are your biggest asset, investing in yourself will help you become more valuable to your employer or clients. For example, you could learn a new skill, enhance your expertise, network, or launch a new side hustle. All of these options can pay off well into the future, helping you advance your professional skill set and increase your income.
Another way to invest in yourself is to hire a personal trainer, nutritionist, or join a gym. Taking care of your health and becoming more active can help you save on future healthcare costs and increase your income. In fact, according to the National Bureau of Economic Research, healthy people make significantly more money than unhealthy people.
DONATE TO A CHARITY YOU’RE PASSIONATE ABOUT
Donating to a cause you care about helps those in need and makes you feel good. While you don’t have to give your entire refund, donating a portion can make a big difference for those less fortunate than you. You may want to combine donating with volunteering your time, so you can see your money go to good use.
Receiving your tax return can be exciting. But this season, before you start spending, consider these options to maximize your refund and make a smart investment in your future.