THE BROKEN WALLET

*Disclosure: This page may contain affiliate links. We receive a small commission if you purchase something we recommend (at no cost to you). All opinions remain our own.

What are smart things to do with tax refund money!!!

Tax season comes every year, and if you’re one of millions of Americans expecting a check from the government, you’re probably thinking about smart things to do with your tax refund.

As a content creator, it’s been years since I’ve had the privilege of getting a tax refund. But even though I’m writing checks instead of receiving them, I still remember my refund days.

Back then, I viewed this cash as free money and did a few “not-so-smart” things with my windfall. The good news is that I became wiser, and after years of splurging on stuff I didn’t need, I started to put my tax refund to good use.

This isn’t to say you can’t have a little fun with your extra cash — I surely did.

Before you start spending this money on stuff that won’t improve your life, here’s a look at a few smart ways to use your tax refund.

1. Increase your emergency fund with a tax refund

I’m a firm believer in paying yourself first and growing a real emergency fund. And when I say “real,” I’m not talking about a few hundred bucks, but rather a minimum of three month’s worth of living expenses or income.

Some people allocate all their money to building their retirement account — for good and obvious reasons. The problem, however, is that they completely neglect building an emergency fund.

But while planning for the future is crucial and an important aspect of financial management, you also need to cash for a rainy day. If not, you’re forced to pull out a credit card whenever an emergency arises.

Getting a yearly tax refund can give your emergency fund a huge boost. You can increase what you already have in savings. Or if you don’t have an emergency fund, use this money as a jumping-off point.

2. Use tax refund to erase debt

Credit card debt keeps a lot of people trapped and makes it harder to save money.

So if you’re walking around with hundreds or thousands of dollars of debt, use this year’s tax refund to pay off your debt, or at the very least, pay it down.

Since the idea is to get rid of debt, don’t re-accumulate balances. If you don’t have enough self-control to avoid using your credit cards, cut or shred the cards. Or lock them away and give the key to someone you trust.

3. Tax money can jumpstart a downpayment fund 

Buying a home provides a measure of security and it’s a steppingstone to personal wealth. But saving a down payment is one of the biggest hurdles to homeownership.

If you receive a sizable tax refund, start a down payment fund — which should be separate from your emergency fund.

Between saving your tax refund and making other regular deposits, you might save enough for a home purchase within a couple of years.

Of course, this will only happen if you don’t touch funds in this account.

Keep your cash in an online savings account to make it less accessible. You’ll not only earn a higher interest rate — helping to grow your fund at a faster rate — it usually takes one or two days for money to transfer from an online savings account.

Lack of immediate access to your cash can discourage frivolous withdrawals.

4. Invest in yourself

Investing in yourself is another smart thing to do with your tax refund. Maybe you hate your job or you’ve been thinking about starting your own business.

Getting a better job may require additional education, perhaps taking a class or a workshop. And starting a business may require cash for creating a website, advertising, and buying equipment and supplies.

5. Fix up your house

Home repairs and maintenance never end — just talk to anyone who owns a home.

Even if you’re able to pay your mortgage payment with no trouble, you may have difficulty coming up with extra cash to improve your property. This is where a tax refund is helpful.

Use this money to fix up your home. You’ll feel better about your space and improvements can boost your property’s value, increasing your profit once you’re ready to sell.

6. Make a donation with your tax refund

Hey, there’s nothing wrong with using a tax refund to give yourself a warm, fuzzy feeling.

But if you didn’t “give” as much during the year, make a charitable donation to a cause that’s close to your heart.

This is a win-win for everyone. Your favorite organization or charity receives a financial gift, and you’re able to write-off the donation on next year’s tax return.

FINAL WORD

Every year many people waste their tax refunds on things that don’t matter and have nothing to show for the cash.

This is your money, so you’re free to do whatever you want. But don’t spend without a plan. With so many smart things to do with a tax refund, why not use these funds to put yourself in a better position? How do you plan to use tax refund money?