So what is the best thing you can do with your tax refund once you get it? There is no clear-cut answer, but you don’t have to spend or invest it all in one place, either! We’ve come up with a few great ways to get the most out of your tax refund and give yourself a better financial footing going forward.
While it’s more fun to spend your tax refund, this is a great opportunity to forego immediate gratification and set yourself up for success down the road. One of the best things you can do with your cash windfall is put it toward your retirement by investing it. You’re not going to feel the impact immediately, but when you start looking at what compound returns can do for you, you’ll appreciate the potential benefits that come from investing early on.
Put It in a Savings Account
No one can predict the future, but it’s pretty easy to prepare for it. Unfortunately, most people don’t have much saved for an emergency or sudden job loss, leaving them in a precarious position if something were to happen. If you don’t already have three to six months of living expenses saved as well as a little extra cash for unexpected occurrences, putting at least a portion of your tax refund into a savings account could be a smart move.
Pay Down Debt
Whether you have credit card debt, a car loan, student loans, or mortgage, one of the best financial moves you can make when you have extra cash is pay down your debt. Not only does this lower the amount of debt you have, which improves your credit score, it lowers the total amount you will pay over the lifetime of the loans.
Remember, a large chunk of the money you pay on debt is interest. Most of the time, interest is calculated as a percentage of the money you still owe. Unless you have a prepayment penalty, paying off debt early can help you to save a ton of money on interest.
Invest in Yourself
Interested in getting ahead in your career? Thinking about a new job? Considered experimenting with a side hustle? Investing your tax refund in yourself may be a smart move. By taking the money and growing your skillset or building a new revenue stream, you could greatly multiply the positive impact of that extra cash for years to come.
How Do I Decide What to Do?
If these sound like great ideas, you may feel stuck on how to decide. Try writing down all the options you’re considering and look at the potential savings and gains from each one, as well as the short-term and long-term pros and cons. Once you compare the different courses of action side by side, the right move should become clearer.