12 Ideas to Help You Be Smart With Your Tax Refund
This post may contain affiliate links. Read my full disclosure policy here.
This post is sponsored by Drive Time, however all opinions and thrill of financial responsibility is 100% mine.
Families would file in as fast as they could, hand over their $5,000 – $10,000 check (not kidding!), and take cold hard cash with them as they left. Many could hardly contain their excitement as I counted out $100 and $50 bills right in front of them.
It was kind of disturbing, especially since their plans for spending said cash never seemed to be in the wisest or most economical way. Most could not wait to tell me how they were going to go blow it on a trip to Disneyland or win big at the local casino. For others, it was a new 60″ HDTV or a pimped out vehicle — that still has years of monthly payments left.
I’m not saying you can’t ever spend money on those things…..I mean, it’s your money, and I’m all about intentional spending. Still, I can’t help but think that if you really want to be financially responsible, using your tax refund in a smart way is a non-negotiable.
Some might call me boring, but I’d much rather go to bed at night knowing that when I spend money, I’ve actually accounted for it, rather than stave off the guilt that comes from an unplanned excursion. I’m not saying it wouldn’t be fun, it just wouldn’t be fun after I got home and looked at my bank account!
So, in all practical-ness, here are 12 ideas for a super wise tax refund investment:
1. Pay Down Credit Card Debt
Credit cards have astronomical interest rates, and that’s money you’re losing every single month. Stop charging, and use your tax refund to pay off what you can.
2. Pay Down Student Loans
If you spent a pretty penny on your education, get rid of your student loan burden by decreasing the amount you owe. This is especially helpful to eliminate before adding marriage and kids to the mix.
3. Pay off Your Car—or Put Money Towards a New One
Think of the extra money you could have to put towards other things if you can eliminate that monthly car payment! If you’re in the market for a replacement or reliable second vehicle, your tax refund can be a huge help in funding or financing another car.
4. Use it for a Down Payment on a House
One of the biggest mistakes people make when buying their first home, is not having enough of a down payment to get started. Use your tax refund to prepare you financially for the next step in your housing journey.
5. Pay Down a Portion of Your Mortgage
Likewise, if you already have a home and still owe money on it, pay down a portion of your mortgage to get you closer to debt-free status. It’s going feel so good when you actually own your home!
Related: How to Chip Away at that Mortgage Payment
6. Increase the Value of Your Home
Remodels, repairs, and updates to your home can up your home’s resale value. Replace cheap and worn out countertops, freshen up grout in the bathroom or kitchen, and focus on your home’s curb appeal.
7. Fund an At-Home Business
Have a business idea you’ve always wanted to try? Use your tax refund as capital to fund your start-up. As an entrepreneur myself, I know how important it is to explore ideas and find out exactly where your passion lies. Sometimes it can take a bit of money to figure that out!
8. Establish an Emergency Fund—or Increase the Amount
Emergency funds are a necessary back-up plan for unexpected expenses. If you don’t have one set up yet, it’s time to get started! $1,000 in reserves is great for beginners. Otherwise, increase your emergency fund up to 3 months worth of living expenses.
9. Pledge to Support a Charity
There are so many organizations that are doing a world of good, but they can only do so if they have funding. Consider donating more money to your local church, support a missionary, or give to a charity that lines up with your belief and goals.
10. Open a Certificate of Deposit and Earn Some Interest
Although Certificates of Deposit (CD’s) are not earning as much as they used to, it’s still worth considering. Many still have interest rates that are much better than regular savings accounts.
11. Put it Towards Your Child’s Education
If you have kids, you may want to set aside some of your tax refund to help with their education. Colleges are expensive and tuition is only going to rise in the years to come. Establish a college savings account for them now.
12. Add it to Your Retirement Savings
Retirement isn’t always on everybody’s mind, especially when you’re young, in good health, and have years ahead of you to worry about it. But the fact is, we have to starting thinking about retirement now, and tax season is the perfect reminder to start an IRA. I have one with Capital One 360, and highly recommend them.
Choose one item off this list and think about how good you’ll feel after you apply your refund toward it. Feeling it yet? Trust me, you will!
Temptation, and spending urges can keep you from ever reaching the place you envision for you and your family, and that can have devastating affects on your finances. Why not take this year to do something with your refund that you won’t regret?
I know, it’s boring….and practical….and responsible, but your future self will thank you!
What plans do you have for your tax refund this year?
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This is a sponsored conversation written by me on behalf of DriveTime. The opinions and text are all mine.
I wish more people shared our passion for practical spending and saving. Thanks for posting this. My plans are to pay off our car which I bought from my dad, pay some down on our mortgage, do some home improvements, and pad the emergency fund. If all goes well, maybe a little for fun. 🙂 Have you done an article on paying down your mortgage early to save the interest? That would be an interesting one. We have been paying one extra payment a year, which pays off our mortgage in 19 years instead of 30!!
I haven’t done a post on that yet – maybe you could guest post for me? 😉 I used to think that the money would be better kept liquid for home repairs and renovations, but I’m not thinking that anymore. Our house in NY is worth nothing compared to what we put into it.
Actually, the guest post idea sounds interesting. I think it would be fun to share some things I’ve learned. Yeah, it’s hard to know what to put into your house these days, almost feels like a complete waste of money when you look at it from an investment standpoint. Our house really needs new floors though, we’ll see how many we can do this year.
Houses and cars….they’re always depreciating. *sigh* Since you’re interested, I’ll be contacting you later about the guest post. 🙂
We also pay one extra mortgage payment per year! Instead of making one monthly mortgage payment, we just have it come out weekly on my husband’s payday. It’s gone before we even wake up and we never miss it, and this way the extra payment is automatic yearly!
We used our tax return to pay the remaining $7K of my husband’s $25K credit card debt! Felt way better then anything we could have bought with it would!
Isn’t it funny how we never seem to miss automatic payments?
I am thrilled for you that you paid off that much debt. You need to go celebrate! (Within frugal moderation, of course.) 😉
I always have the best of intentions before I get that tax refund, but I never have a concrete plan. Consequently, the emotional wave that hits me when the check clears is blinding, causing large bouts of frivolous spending… ugh. Thank you for this great post and the reminder that I need to create an action plan soon!
It’s so hard to see that big chunk of money come in and think about all the fun things you could do with it. Responsibility is frustrating, sometimes! I think it’s okay to treat yourself every once in a while, but you hit the nail on the head with the necessity of an action plan BEFORE you receive that $$ in your account, and setting a portion aside to help reduce debt or save up for something even bigger is always worth it.
How about everyone who is getting a large refund speak to their tax professional and find out how to reduce that number? Getting a big return every year may feel good on the surface, but when you consider it is basically an interest free loan to the government, you may change your mind. A $6k return could mean an extra $500 to your family every month in the bank.
You make an excellent point here, Jenn! I know there are a lot of people that would rather pay more than find out that they owe, but it’s always good to talk to a CPA and find out exactly where that balance lies.
Absolutely! I did some pre-filing estimating and it appears my refund will be in the double digits this year! I was a little bummed at first, but I intentionally worked on decreasing my withholding as much as possible so that I can take home as much as possible each payday and not loan the government my money. It may not be “fun” when my direct deposit is almost unnoticeable, but really that means I did the best thing financially I could do with my money.
These are some great tips! We’ve been waiting on ours to arrive and my husband and I have been discussing what to do with it. In years past we have paid off CC debt, bought our first payment free family vehicle, replaced that first family vehicle with a newer one last year with our entire refund. This year we plan to replace my husbands commute car with a newer one. In addition we’ll be paying for our vacation rental, buying life insurance, padding the savings account and paying off a small CC of $200. We always try to do something that we need…that could be a new used car, new lawn mower (possibly this year), home improvement etc.
It sounds like you are making some really smart decisions, Julie! I love that you and your husband sit down and discuss how to best spend the refund, and congrats to paying off CC debt!