Tag Archives: Ways To Spend Your Tax Refund

5 Ways To Spend Your Tax Refund

ways to spend your tax refund

It’s that time of year again, tax season.  Working in a CPA office, tax season can be a bit overwhelming especially for someone who is new to the field.  This is only my second tax season and I’m still learning a lot.  I’m in a great position to not only meet all different types of people, but also to help them.

A lot of clients anxiously wait for our call letting them know if they owe money or are getting a refund.  Most of the time those that have to pay in already expect it, but those that get a refund are usually surprised.  I think it’s that old saying “prepare for the worst, but hope for the best.”

One day there will be a time when we are in a position to go crazy with any refund we get.  Fly by the seat of our pants and do something unplanned.  But that’s not where we are right now.  Right now we use any refund to help get us a step ahead for the next year.

Here are 5 ways to spend your tax refund:

Set it aside for real and personal property taxes.

I talked about irregular bills awhile back and how you can set aside a little money each month to not be thrown off track.  Using your tax refund is a great way to be ready for that year’s property taxes.

how to spend your tax refund

Grow your emergency fund.

An emergency fund is crucial for being successful with your finances.  Unexpected expenses pop up and by having an emergency fund ready then you won’t be thrown off course.  Stash the money aside in your emergency fund for those unexpected needs.  I always say that $1,000 is a great starter amount for a fund, but sometimes you need to have a little extra on hand.  Another great use is to actually start an emergency fund if you haven’t been able to yet.  Take a portion of your tax refund and set it aside in a savings account.

tips on doing the debt snowball, how to do the debt snowball

Pay down debt.

There are two approaches for looking at debt. You can start with the smallest amount and work your way towards the largest OR you can start with the debt with the highest interest rate.  Either way works, but you need to find what works best for you.  A debt snowball is a great technique for getting out of debt. I recommend knocking out the smaller debts first, but if you have some that are similar in balance then take a look at their interest rates.  Put your tax refund towards a debt.  It’s a great feeling when another one bites the dust.

Invest in your retirement account.

Once you have your emergency fund and debt paid off, then you need to work on your retirement planning.  You can put aside $5,500 per year (if under the age of 50) into your IRA.   If your employer offers a 401(k) with matching, make sure you’re at least putting in the minimum to get your free money.  After that talking with an financial planner to make sure your doing enough to hit your retirement goals.

Put it towards long term goals/debt.

I put long term goals and debt in the same category for this one.  I’m talking about mortgages here.  If you’re saving for a home or wanting to build one like J and I then this is for you.  If you already have your home then this applies to you, too.  It’s important to have your emergency fund, paid off short-term debt, and your retirement plan is fully funded for the year before moving on.  Once those are done then you can put your tax refund towards the long-term goals.

Tax season only comes once a year so it’s not often we have disposable money on our hands.  Make sure you have a plan for it so your hard earned money can do the most good for yourself.  It’s not really fun to be financial responsible all the time, I know.  As adults, though, we have to do it.