So you’ve finished your taxes (congratulations!) and you’ve got some money coming back. A tax return can be a very useful shot in the arm to help you reach your financial goals. Whether you’ve got $50 or $5,000 coming back, here are a few ways you might consider using that money.
- Put it in the bank and don’t touch it. According to CNBC, a staggering 66 million Americans don’t have a single dollar saved for an unforeseen financial event. Even scarier, 47% of Americans said they couldn’t afford an unplanned $400 expense without having to sell something or borrow from somewhere. You really don’t want to be a part of that group if you can help it, and your tax return could be the perfect place to start a habit of saving for a rainy day if you’re not doing it already.
- Pay off your credit cards or other debt. One huge step toward anyone’s financial freedom is shaking off debt that you’ve accumulated. When doing that, you want to attack the highest interest stuff, like credit cards, first. The longer those debts sit unpaid, the greater the amount you’re going to end up paying back as interest snowballs. So, if you’ve already got a little emergency fund set up, throwing your tax return at credit card or other debt might be a great way to save yourself a lot of money (and stress) later on.
- Refinance your home or make improvements. Have a look at current mortgage interest rates and see if they’ve dropped considerably since you bought your home. If they have, using your return to pay closing costs on a refi may be a great way to save some money on interest down the road. Also, making improvements to the property which raise its value: new windows, an updated bathroom or kitchen, or even fresh paint, is all money that you’ll likely make back when it’s time to sell the house.
- Buy something boring that you actually need. Have you been putting off new tires for the car, delaying some dental work, or ignoring that puddle of water under the sink? You definitely don’t want a blowout, a root canal, or water damage, so it might be worth using your return on something like this.
- Buy something cool that you want. Now, hold your horses. Go back and read those first four. Do you have a decent emergency fund set up? How’s your debt looking? Happy with the house? No pressing needs? If all of those are true, you can look at what you’ve wanted to do from the beginning: buying something fun. Just make sure that your $500 return doesn’t cause you to spend $3,000 on a vacation you wouldn’t have taken otherwise.
Everyone loves hearing that you’ve got some money coming back at tax time, and it may be tempting to immediately run out and buy something shiny. But if you think of that money as a tool, not a toy, you can set yourself up for far greater financial success in the future.