Are you expecting to receive an IRS refund this year? Do you have big plans for that money? Maybe you want to spend it on something nice for yourself. Maybe you are planning to use it for a great vacation to get away from it all. Many people who receive a tax refund each spring eagerly await the money that will be deposited into their bank account. However, instead of rushing out to spend it on some type of splurge, consider putting it to another use.
Pay off Debt
For one thing, one of the best uses for your IRS refund is to pay down any debt you may have. If you’re swimming in a pile of debt, the last thing you need to do is spend money elsewhere. Using your IRS refund check not only pays off the debt, it lowers your overall balance so that you end up paying less in interest charges over the long run. It’s a great way to jump-start a snowball repayment method or a huge snowflake to add if you already have begun.
Put it Towards Future Loan Payments
When you receive that IRS refund in the mail or deposited into your bank account, consider putting a majority of the money towards future loan payments. If you have a mountain of student loans, overpaying your current statement will help you decrease the interest or debt. Most people don’t like the idea of spending their refund check on loans, but it’s a smart move to make. Paying off your loans as soon as possible is never a bad thing.
Additionally, prepaying your bills for a couple of months is another great way to use your IRS refund. Most people don’t plan for their refund when they go over their monthly finances, so you should take advantage of the money and put it towards your bills. If you can prepay your bills for an extra month or two, you’ll be ahead of your finances.
Put it in a Savings Account
Of course, if you don’t have any immediate financial issues to deal with, the next best option for your IRS refund is to put it into a savings account. If you’re tempted to spend it, consider having the check deposited directly to your savings account so it’s as if you never even see the money. Bulking up your savings account whenever you have the money to do so is always a smart idea.
Start or Add to Your Emergency Fund
While adding your refund to a savings account is good for those times when you need a couple extra dollars for weekly expenses or when you’re planning to save for a big even or purchase, using your refund for an emergency fund is an even better idea. An emergency fund should be used for unexpected issues such as a medical illness, job loss, or other situations that cause sudden financial difficulty.
Use it for Home Repair
If you own or rent a home, you might have several repairs or upgrades that you’ve been putting off due to lack of finances. You should consider putting your IRS refund toward repairing or upgrading one (or more) of those issues. Home repair is nothing to procrastinate about as such problems only become worse the longer they go untreated.
Save for an Important Goal or Purchase
Maybe you have an event coming up, such as a wedding or baby shower, that you need to save money for. Or maybe you plan to have dental surgery and you know that your insurance won’t cover the bills. Or perhaps you want to buy a car to make your commute to work easier. If there’s something you’re saving up for, using your IRS refund to reach that goal is a smart decision.
Add to Your Retirement Account
It’s never too early to add money to your retirement account. If you have no outstanding debt and your bills are all fully paid, consider putting aside some money into a traditional or Roth IRA. Or even put the money into a separate account dedicated to retirement savings. You never know how much money you’ll need once you retire, so setting aside even a small bit of your refund for retirement is a great idea.
Start a College Fund
If you have children, why not put aside your refund for their college savings? Alternatively, if you are planning on going to college, you might want to save your refund to fund tuition, housing expenses, or book costs. The cost of attending college seems to rise each year and as with retirement savings, it’s never too early to start saving for college. Even the smallest amount of money will help someone who plans on attending college.
Spend it on Something You Need
Of course, you may want to just spend your IRS refund on something you desperately need. Maybe you need new winter boots or maybe your car needs to be repaired. You might need to update some appliances or you might just want to spend a little extra on a nice dinner. Sometimes splurging a little bit on yourself is just as smart as spending money on other financial necessities.
(Photo courtesy of substack)