Smart Ideas for What to Do with Your Tax Refund

We all have the same thought when a tax refund shows up in our mailbox or bank accounts: free money! OK deep down, we know it’s not, but that doesn’t stop our imagination from going wild with all the ways we could spend ours. And while that’s fun for a minute, it’s always a good idea to come back to reality and consider some smarter ways to put your tax refund to good use.

Need some ideas? Keep reading for several ways that will benefit your personal finances, your life and your peace of mind in ways that mindless spending can’t.

Smart Ways to Save

Start saving money for emergencies. Using your tax refund to create (or add to) an emergency fund is one of the smartest, most practical ways you can set yourself up for future financial security and success. Simply put: Without savings, you leave yourself financially vulnerable. Whether it’s a job loss, medical emergency, major repair or other life change, there will be times where you’ll need money in the bank to cover something unexpected. Having an emergency fund that you can pull from gives you that cushion as well as peace of mind (which is priceless).

Direct deposit it into your savings account. The IRS will allow you to split up your refund in up to three accounts through direct deposit.(1) So if you need some of the money for immediate use you can split it up across accounts automatically as you see fit. If there is no immediate need, then it’s smart to make sure it all goes directly into your savings account versus your checking account. This will mitigate the temptation to go impulse shopping and help the money stay out of sight, mind and wallet until you really need it.

Smart Ways to Spend Money

Pay off debt. The longer you wait to be debt-free and completely pay off credit card debt, the more you will end up having to pay over time — making the minimum monthly payment doesn’t cut it. If you can put a big chunk of money toward your credit card debt (or car payment, student loan, other loan, really any type of debt) at one time or use your tax refund to make larger payments, then you can pay your debt off sooner and use that money for something else (or save it).

Kick start or enhance your career. A tax refund can be a great monetary tool for taking your career goals to the next level. Is there a training workshop, certification program or college course you’re interested in? Do you need to go shopping for anything to get the ball rolling with your business idea? Leverage your tax refund and use it as a small investment toward big career goals.

Pre-pay your mortgage. Because so much of your payment on a long-term note goes to pay off interest, use your refund to reduce the principal amount to save money over the life of the mortgage. Even if it’s just an extra payment now, you will reduce your future obligation to the bank, putting you that much closer to home ownership and freeing up that money for other things.

Make home improvements. Making small home improvements now can make a big difference in increasing the value of your home, as well as its salability. If it’s been a while since you’ve updated your appliances, revamped your home’s curb appeal or invested in quality furniture and décor pieces, think of your tax refund as an opportunity to do these things.

If you decide to update your appliances and go with ENERGY STAR®-certified models, that can reduce your electricity bill. Think of it as spending a little to get a lot in return, just like this: With Acima, you can shop for those upgraded appliances, furniture, electronics or other large items you want, then make manageable lease renewal payments until you own the product, or save by exercising an early purchase option. If you no longer want the item, you can return it in good condition at any time.

Smart Ways to Invest

Add to your retirement fund. Whether it’s a traditional IRA, Roth IRA, 401(k) or other retirement fund, now is a great time to start (or continue) contributing to it. Why? Because it’s never too early; the sooner you put money toward a retirement fund, the more time it will have to grow. If you do receive a refund this year, consider setting up your future self for success and peace of mind down the road. No, it’s not as fun as spending it right now, but trust us — you will thank yourself later.

Open a 529 plan. If you have children, grandchildren or other young relatives, use your refund to invest in their education. A 529 plan is an investment account that not only help these special people in your life afford a higher-level education, but it offers tax benefits to you for doing so. (2)

Invest in the stock market. Historically speaking, the stock market has offered a greater return on investment than a savings account, CD or bond. Though investing in stocks can be risky (and we recommend educating yourself on the stock market and investment tips before you start investing), the long-term outlook of stock investments makes it a good option if you don’t have an immediate financial need.

Increase Your Financial and Shopping Power

There is definite power and freedom to be enjoyed when you think of your tax refund as an opportunity to get ahead financially and improve your financial situation. It’s as simple as breaking it down into the three goals we laid out above: saving your refund, investing it, spending it wisely (hint: Acima can help with that) or doing any combination of the three. It may not be as fun as splurging on something fun in the moment, but you’ll thank yourself later.