It’s a Saturday afternoon and you’ve finally gotten through the grueling process of filing your taxes. Then, to your surprise, you see that you’re going to get a refund and proceed to do a happy dance in your living room.
Now comes the question: “What am I going to do with my new found money?”
According the IRS, the average refund for 2015 was $3,120, which is more than a month’s worth of income for many American taxpayers. While it’s easy to hit the mall and treat yourself with your refund, it might not be a bad idea to think about how you can use your refund to better your personal finances.
So, what are you going to do with it? Here are 6 ways you can get the most out of your 2016 tax refund.
Boost your savings
We’re a huge fan of this idea because it’s a no frill, low effort way to start making your tax refund work for you. Putting money away for a rainy day is definitely a habit you need to master because you never know when you’re going to need it.
If you go beyond a basic savings account, a Certificate of Deposit (CD) is a great place for your refund to go because CDs tend to offer you higher returns on your savings. Not to mention that the funds in a CD cannot be accessed until the maturity date, so you aren’t tempted to sneak a little out when you head to the mall.
What if you don’t want to put your entire refund into savings? No problem. Start out saving a portion of it and set up an automatic transfer to pay yourself all year long.
Get rid of debt
Let’s be honest. Debt stinks. If you’re being weighed down by credit card debt, or any debt for that matter, using your refund toward paying it off is a great option.
While it’s important to make a good habit of saving a certain amount each month, it doesn’t make a whole lot of sense to put that $2,000 check in an account making 1% interest while you have a credit card balance charging 18%.
Sacrificing your tax refund might not be your first choice, but it will free up your money to save more with that debt payment out of the way.
Contribute to a college fund
With the cost of tuition continuing to rise, paying for your kids to go to college can be tough. If you have little ones or grandkids, starting a college fund with your tax refund is a great idea to help ease the financial burden when they finally go off to school.
More and more students are going into debt with student loans, so using your refund to start a college fund could mean the difference between paying student loans and having a debt free grad.
Make home improvements
There’s always something in your home that can use a little updating, especially if you live in an older home. Spending your refund on replacing old windows can help make your home more energy efficient saving you money on your electric bill.
You can also take on bigger projects like remodeling a kitchen or bathroom to not only make your home look updated, but to also help it function better. This will make your house more attractive to potential buyers when you decide to sell. While your refund might not be able to cover a project like this, it does help make paying for it easier.
Fatten up your IRAs
You’re already saving for retirement, and if you’re not then you should be. So why not add to your retirement savings with “extra” money that’s not part of your paycheck? Having those funds in a Traditional or Roth IRA will really help you down the road for when you decide to retire.
Plus, you’ll probably thank yourself for putting your return away rather than spending it on gadget 2.0.
Have a little fun
Finally, if you’re in a place where you have your financial ducks in a row, there’s nothing wrong with using your tax refund to treat yourself. Have that guilt-free shopping spree or take your family out to a nice dinner.
You can also buy an experience by planning an awesome vacation, taking a class, or learning a new skill. Not only will it be more satisfying, but you can also share these experiences with others. Memories last a lifetime while material things are temporary. Nothing beats sitting with your friends and family reminiscing about “that one time…”
When you do get your refund, hopefully you’ll have a plan on what you’re going to do so you can get the most out of every cent.