Tax season can be a stressful time of year. It’s when you figure out if you owe the government money, or if they owe you. If you were pleasantly surprised this year with a tax refund, we’ve pulled together a few of our favorite wise money moves for you.
Why let another tax refund go to waste, when you could use it to treat yourself the wise money way? Here are are our favorite ways to maximize the return on your refund.
Pay Down Debt
Boring, we know. We’ve covered how compound interest in your savings and investments helps. If you have debt, the compound interest goes the other way against you. Financial experts often recommend paying down credit cards, student loans, personal loans, and other high interest debt first.
Add to Your Emergency Fund
An emergency fund is cash that is easily accessible in case of emergency (ie. a job loss, car issues, etc). Many financial experts recommend that emergency funds cover 3-6 months of living expenses. Dave Ramsey suggests starting with $1,000 if you haven’t yet, pay off debt, and then save 3-6 months of expenses. Emergency funds can be kept in high yield savings accounts or money market funds where they will earn significantly more yield than in a typical big bank savings account.
Add to Your Retirement Savings
The stock market has been volatile over the last 12 months, but if you have a long time horizon, it might be a great opportunity. Once you have paid down debt and established an emergency fund, consider putting your tax return in your retirement account or using it to establish one. If you’re concerned about market volatility, there are lower volatility options. Robo-advisors, which many brokerages offer, can help build a hands off portfolio based on your goals. Many brokerages will offer some guidance via customer service and financial advising services.
Go on Vacation
Getting your finances on track can be tough work. According to Forbes, taking vacation time reduces stress, improves heart health, increases mindfulness, boosts brainpower, and improves sleep. Vacation doesn’t have to be over-the-top, and there are plenty of affordable travel options to enjoy throughout the US. Consider investing your tax refund into your personal health and wellness.
Donate Your Tax Refund
Feeling generous? Donating your tax refund might be a great option if you have established your wise money life. Start by figuring out what you’re passionate about, and consider donating to a local non-profit. Watch your money work through your community. We recommend researching nonprofits before giving by using GuideStar and ProPublica.