What You Should Actually Do With That Tax Refund
Money

What You Should Actually Do With That Tax Refund

Dreaming of tax return splurges at Sephora and West Elm? Bad move, sister.

If you’re seeing the big dollar signs on your tax refund check this year, it can be tempting to splurge on a tropical vacation (because your hard work deserves it) or shopping spree (if it’s for a new work wardrobe, it counts right?). It’s easy to justify the fun purchases, but that doesn’t mean they’re practical. It may take a little willpower, but focus on financial security with these finance-savvy options for budgeting your tax refund, which are just as easy to justify. 

BULK UP YOUR EMERGENCY FUND OR SAVINGS

Your savings account could always use some extra padding—why not treat it to a belated Christmas present? If it’s a struggle to put that money away, think about your long-term goals. {click to tweet} Maybe you want to buy a new car in a couple years, or maybe you’re looking to move out of your triple roommate apartment and into your own place. Your savings account will thank you when the time come.

On a related note, it’s always important to have an emergency fund in preparation for the unexpected. This is also necessary if you’re looking to embark on the entrepreneurial life soon. If you haven’t saved three to six months of your living expenses yet (or if you’ve had the misfortune of already having to dive into your fund), now’s the time to do so.

Besides, it’s pretty satisfying to watch those numbers in your bank account increase.

Pay off your credit card loans first, because those are considered bad debt and the interest rates are typically higher.

LIGHTEN YOUR DEBT LOAD

According to Money magazine, paying down debt is the number one thing people do with their tax refunds. Join the crowd! Whether you got a little carried away with your credit card, have a nagging medical bill, are carrying the weight of student loans, or are still making car payments, ease the burden on yourself. My recommendation is to pay off your credit card loans first, because those are considered bad debt and the interest rates are typically higher. The weight on your shoulders will feel that much lighter.

TREAT YOUR SENIOR SELF

What if you could maximize or multiply your tax refund? That’s where investing comes in. Make a contribution to a tax sheltered account, such as an IRA, or open one if you haven’t already. If these accounts aren’t meeting your needs, (think if you’ll max out your IRA—contribution limits for the 2016 year are $5,500 if you’re under 50), look into a taxable brokerage account, which offers advantages such as no contribution or income limits and the ability to withdraw without penalty, the latter of which is great if you’d like to invest money for goals besides your retirement—maybe for that dream house in fifteen years or a future wedding. Diversify your investment portfolio with a mutual fund or stocks, depending on your risk level. 

You have multiple options here—assess your goals and needs and then pick the one best suited for you.

INVEST IN YOUR CAREER OR EDUCATION

Some investments aren’t as tangible as others, but that doesn’t mean they’re not as worthy. {click to tweet} Are you looking to take your career to the next level or to further your own knowledge? Enroll in that certificate program you’ve been eyeing or take a course that will develop and add to your skill set. Or perhaps you want some expert career advice or a resume review. Find a career coach in your area or check out Career Contessa’s Expert Services. If you’re beginning to apply or in grad school, put the money toward application or enrollment fees, or your tuition. 

As long as it’s affordable, not extravagant, and doesn’t eat up your whole refund, go ahead and purchase the one thing you really need.

MAKE AN UPGRADE

Whether it’s a new iPad for work or a couch for your new apartment, it’s okay to treat yourself to something that will better influence your daily life. Think of it as a different type of investment. As long as it’s affordable, not extravagant, and doesn’t eat up your whole refund, go ahead and purchase the one thing you really need.

If everything is checked off and you still have a little money leftover, go ahead and spoil yourself—a weekend vacation, a nice dinner, a spa day, or whatever your vice may be. You have earned it, after all!

What are you spending your tax return on?