If you’re like millions of Americans each year, you may have already received or be expecting a tax refund. So, what should you do when this money arrives? The “right” choice for you depends on your personal circumstances, as well as your financial goals.
To help you brainstorm how to make this money work for you, we’ve compiled a list (in no particular order) of eight smart ways to spend your tax refund.
1. Reduce Your Debt
If you have debt, your tax refund can provide an opportunity to reduce what you owe, taking some of the pressure off your future finances. If your refund isn’t enough to eliminate a debt entirely, you may want to consider refinancing the debt so that your extra payment goes farther.
There are several ways to approach this, such as a balance transfer that allows you to move high-interest credit card debt to a lower-rate credit card or refinancing an auto loan if rates have dropped since you bought your car. To determine what’s best for you, you’ll want to assess your finances and create a debt management plan specific to your situation.
2. Pad Your Emergency Fund
Knowing that you’re prepared for the unexpected can give you a sense of peace. You can get started by making sure you have an emergency fund to help keep you financially afloat during times of crisis.
As a general rule, most people aim to put at least six months’ worth of living expenses in their emergency fund. If your current emergency savings falls short of that goal, depositing a portion of your tax refund into a higher-yield savings account, such as a Money Market, can be a smart way to put that cash to work for you.
3. Give Your Retirement Savings a Lift
Due to the power of compound interest, the money you set aside for retirement now can grow significantly over time. If you’ve been struggling to contribute to your employer-provided fund or an IRA, using your tax refund to boost your savings can be a wise money move.
4. Kickstart Your Child’s Savings
It’s never too soon to get your child started on the right financial foot. Whether they’re a young child or a teen, setting up an account of their own can help them learn important money management skills. Children under 18 qualify for a 1.00% Annual Percentage Yield (APY) on PSECU savings account balances of up to $500, so if you’re able, you may want to help boost their savings by making an initial deposit to max out their extra savings.
5. Upgrade Your Home
Does your house check the boxes of all your wish list items? If not, there are likely things you can do to make it better meet your needs or satisfy your wants. For instance, if you’ve transitioned to working remotely, you may need to enhance your home office. Or if you’re caring for a loved one, you may want to finish your basement to create more living space.
Depending on the scope of the home projects you’d like to take on, as well as the size of your tax refund, you may need additional funding to complete them. You can supplement your cash with a low-interest rate Home Equity Line of Credit (HELOC). Using your tax refund will allow you to reduce the amount you need to borrow for home projects now, while using a HELOC will give you the ability to access more funds if you need them in the future.
6. Invest in Yourself
Maybe you’ve been considering going back to school. Putting your tax refund toward funding a degree can be a smart financial move. Paying cash will help you avoid racking up student loan debt, and investing in your education can lead to long-term financial gains by qualifying you for higher paying jobs.
The same can be said for training opportunities. Perhaps you love the field you’re in but need an additional certification to move to the next level. Or maybe there’s a professional association that would help you build connections after relocating to a new region. Using your tax refund to further your career development in these ways can open the door to more lucrative positions down the road.
7. Share the Love
No matter what your passion is, there’s likely a nonprofit organization related to it. Whether it’s ending hunger, curing a life-altering disease, or fostering abandoned pets, there are an abundance of community organizations working to solve important issues.
If you find yourself in a position to spare some of the money you receive through your tax refund, consider ways you can be a helper, and direct a portion of your return to a group doing work that resonates with you.
8. Have Some Fun
Practicing good financial management doesn’t mean you can’t splurge sometimes; it just means that you do so within your means. Earmarking a portion of your tax refund for fun can look different depending on your other needs. You may decide to do something simple like treating your family to takeout from your favorite restaurant or take a more elaborate approach and plan a road trip.
Allowing yourself some small indulgences can give you a sense of satisfaction while keeping your budget on track. Plus, our economy, small businesses especially, rely on consumer spending to stay afloat, so spending in your local community can help create positive economic impact, as well.
We Can Help You Make the Most of Your Tax Refund
Whatever path you choose, we can help you maximize the impact of your tax refund. From refinancing options to savings shares that meet all your needs, you can achieve more with us. Learn more about our banking services today.