As cold and gloomy as this time of year can be, many of us look forward to it for one big reason: Tax refund time! You’ve just paid for all those holiday gifts, and you’re counting on that refund to either pay off some credit card bills or replenish your savings. But what are the best ways to use that “extra” money? The average tax return is about $2,800 which is a substantial pile of cash for most of us. So it’s smart to plan carefully exactly what you’re going to do with it. Here are some smart tips:
Pay Off Debt
This should always be your No. 1 priority. After all, you’re only really accumulating wealth if the income you’re making is greater than the interest on the debt you’re paying. And some debt – especially credit card debt – compounds itself over time. So while you may think putting your refund in savings is the smartest decision, the safest way to spend that money is to pay down any high-interest debt first. Remember – debt also affects your credit score and can impact buying power in the future.
Keep a Rainy Day Fund
Next to paying down debt, saving – and careful investing – is the second best thing you can do with your refund money. After you pay down your debts, pay yourself. It’ll add up to a nice nest egg over time.
Do Some Home Improvement
If you own an apartment in NYC, replacing those nasty old cabinets or re-tiling your bathroom may have been on your wish list for years. Let your refund give you the extra boost to finally tackle these projects. If you rent an apartment and find you need more space, de-cluttering and getting a storage unit are great ways to eliminate your frustration and give you a new lease on life.
Have you been dying to try out that new farm-to-table restaurant Downtown but didn’t think it was sensible to splurge? If, after paying down debt and putting a good chunk of your refund into savings you still find yourself with extra cash, do it! Or put it in a vacation fund and use great travel services like Airbnb and Zipcar to book your next getaway while still staying budget-friendly.
There are any number of ways you can choose to spend your refund. Just make sure you take care of your financial responsibilities first. After that, spend what you’re comfortable spending, or start saving for next December’s holidays.
And if you’re a tax accountant, you might want to buy yourself a drink. Tax season is almost upon us!