8 Smart Uses For Your Tax Refund

February 13, 2017
Before you spend your tax refund, here are 8 smart ways to spend your tax refund so you can get ahead.
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Tax season is upon us once again.

Some of you loathe this time of year while some of us don’t mind one way or the other. Then we have the folks who anticipate it so much that they’ve already spent the money before it hits the bank.

If you’ve already spent your tax refund mentally and haven’t even filed the thing yet, I want to encourage you to take a step back and let’s think about this for a second.

What if you could use this refund to actually get ahead of your expenses? How about starting an emergency fund for life’s little mishaps? Or creating unlimited future income?

I know some of those don’t sound as glamorous as a weeklong trip in Miami, a pair of new shoes, a new television, or a down-payment on a car payment (yes, you read that right..a car payment); but the alternative is staying broke.

Do you like being broke?

My guess is no. So, if you’re ready to overcome this cycle of never having enough money to last you until your next paycheck, or paying interest on credit cards — I’ve got some helpful advice for you today. Here are nine smart uses for your tax refund.

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Before you spend your tax refund, here are 8 smart ways to spend your tax refund so you can get ahead.


8 Smart Tips for Your Tax Refund


1. Pay down high-interest debt

Maybe you racked up some credit cards for an unexpected emergency or last year’s Christmas. Whatever the reason is, if those bills hit your mailbox every month, they’re accruing interest.

If you really want to get rid of that credit card bill, you have to stop handing over minimum payments every month. While they might help keep you from getting a ding on your credit report, it’s costing you money in the long-run.

Do yourself a favor and pay off a big chunk or all of your credit card debt. I know it doesn’t sound fun to hand over a large amount of money to your creditor, but you’ll still be paying yourself because the money you’re saving on interest can now grow in a high-interest savings account or investment account.


2. Build up or start your emergency fund

If you have no lingering high-interest debts, the best way to prevent yourself from going into future debt would be to start an emergency fund.

Open a separate savings account that you will have limited access to and put all or a portion of your tax refund aside in this account.

Next time you have an unexpected medical emergency, you won’t have to reach for those high-interest credit cards because you will already be prepared.


3. Invest for long-term savings goals

If your debt is out of the way and you have a solid emergency fund, next you’ll want to make sure your long-term savings goals are being funded.

I’m talking about future down payments on homes, all-cash payments for vehicles, vacations, or college funds.

If you and your spouse want to travel Europe in a few years, invest your tax refund into an investment vehicle. Since you won’t need that money for a few years, it will have a chance to grow at an average rate of return.

The same applies to saving for a lofty down payment or your children’s future education.


4. Pre-pay bills

If you have a variable income, the best way to assure your future bills are paid on time is to pre-pay them.

With a large amount of cash on hand, could you pre-pay your rent, electricity, water, or cell phone bills?

It may not seem like it would help, but pre-paying your bills will give you a little breathing room in your budget to continue building up your cash reserves for future lean months when your expected income doesn’t come through when you want or need it to.

5. Invest in your education

Is there a course you’ve wanted to invest in that will help your personal growth? Or maybe you’ve been looking into investing in a new hobby, like blogging?

If so, use your tax refund to invest in those courses or to pay for the expenses of your newly desired hobby.

This investment could pay off in an unexpected way. When I started Life and a Budget with a little left over tax funds, I never expected that I would earn over $7,000 from it the following year!


6. Perform necessary maintenance on your home or vehicle.

If you’ve been putting off necessary auto maintenance such as tire rotation, new tires, oil changes, etc, this is a great time to get caught up on these to make sure your car continues to operate properly.

The same applies to your home. If your faucet has been leaky or your oven has given out, make the necessary repairs while you have the extra cash.

Even if you’re up to date on all auto and home maintenance tasks, make sure you reserve some of your funds from your tax refund towards any future maintenance needs for the year.


7. Purchase life insurance

If you don’t have life insurance, you need some! Insurance companies provide some pretty decent discounts for individuals who pre-pay their life insurance policies for the year.

Compare life insurance quotes with Policy Genius and secure life insurance with your tax refund. If your iPhone is insured, please take the time to make sure that everyone in your home has some type of life insurance.

There’s nothing worst than having to deal with the grief of losing a loved one and during those times, the last thing you’ll want to worry about (or have your loved one’s worried about) is burial expenses.


8. Make an extra mortgage payment

Reduce the life of your mortgage loan by making an extra mortgage payment or two this year.

Make sure you are clear with your lender that you are making an extra payment towards your mortgage and not pre-paying it.

If your lender allows, pay it directly towards your principal loan so that it will reduce the actual amount you borrowed.

Just imagine if you made an extra mortgage payment every year?  You could shave off four or more years on your mortgage. See how much you can save with this additional payment calculator.


Wrapping Thangs Up

Of course, there are more fun things to do with your tax refund. A weekend in Vegas may sound pretty tempting and I know you’re certain that you will hit big over there and make your money back.

But let’s be realistic. You can spend all of your tax refund before you even get it or you can plan ahead and use your money wisely.

By doing the ladder, you’re setting yourself up for a future with less headaches because your bills will be pre-paid, your debt will be gone, and you’ll have money set aside for all that life will eventually serve you.


So, are you going to “Vegas” with your tax refund or stacking your coins properly?

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Latoya Scott
CFEI/Social Entrepreneur
Latoya Scott is a Certified Financial Education Instructor and personal finance writer with a mission to help millennials learn how to stop living paycheck to paycheck so they can become financially carefree.

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  • Amanda @centsiblyrich February 13, 2017 at 2:49 pm

    Great ideas for the tax refund, Latoya! We use ours to fund our IRAs – it’s what we’ve done for years, so it doesn’t really even feel like a “windfall”.
    Amanda @centsiblyrich recently posted…Do You Need An Emergency Fund? A Guide To The Best AdviceMy Profile

    • Latoya Scott February 15, 2017 at 1:52 pm

      Thanks, Amanda! Great job!

  • Alisha February 13, 2017 at 11:18 pm

    I always put some aside for a family trip and the rest on bills and savings. Love all these great tips.

  • Stacie February 13, 2017 at 11:59 pm

    These are all wise ways to use that refund instead of blowing it all. I’ve paid and pre-paid bills with mine in the past.
    Stacie recently posted…Always & Forever: A Valentines Playlist by 116 CliqueMy Profile

  • Tiffani D February 14, 2017 at 1:25 am

    I actually was thinking about doing numbers 1, 4, 6, and 8. #1 is the most important to me right now, so I think that is where I will put my focus. Thanks for sharing and the reminder. You know how we can have GRAND plans and no follow through. This will not be me this year.

  • Tomiko February 14, 2017 at 6:56 pm

    When I received my bonus in oct I paid off 3 credit cards.. when I get my taxes I will put money in my travel savings and pay off 2 additional credit cards then I will be down to 1 credit card..
    Tomiko recently posted…The Reason Why I love Five Senses Restaurant in MurfreesboroMy Profile

  • Tanya February 14, 2017 at 7:05 pm

    Yes to all of these! I had these on my mind but I will be printing this out for hubby to see.
    Tanya recently posted…20 Texts to send Your Boo-Thang on Valentine’s DayMy Profile

    • Latoya Scott February 15, 2017 at 1:51 pm

      Lol, good idea! Im learning they need to see things to believe!

  • Kim February 14, 2017 at 9:43 pm

    These are great tips. When I get my refund I normally split it in thirds for savings, bills, and personal use.
    Kim recently posted…Why I enjoyed keeping my Pregnancy a SurpriseMy Profile

  • Mimi Green February 14, 2017 at 10:50 pm

    I’m investing mine in my son’ so education. It is going to his private school tuition.
    Mimi Green recently posted…I Can Easily Identify My Luggage, Can You?My Profile

    • Latoya Scott February 15, 2017 at 1:50 pm

      That’s a great idea too!

  • Kirstin Fuller February 15, 2017 at 2:01 am

    I’m going to work on building that emergency fund. Under this current administration, I feel that my emergency fund needs to be a lot healthier. Pre-paying your bills is a fabulous idea, I never thought of doing that.
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  • Emily @ JohnJaneDoe February 15, 2017 at 10:54 am

    When I was in my 20s I used mine to bulk up my reserves, open up my first IRA and my first brokerage account. (the amounts needed to open both were a little higher in the pre-internet days.) What I didn’t do (and should have) was used them to pay down debt more aggressively.

    I do think that putting yourself in a better long term position (however you do it) is a good idea for at least some of your money. If you want to blow some of the return as fun money, set a limit. Spend a small percentage like 10-20% on a treat, and then be smart with the rest.
    Emily @ JohnJaneDoe recently posted…Karma and the Art of Home Maintenance: My Hot Water Heater AdventureMy Profile

    • Latoya Scott February 15, 2017 at 1:49 pm

      That’s a great point, Emily! It’s definitely okay to treat yourself, but not in a way that’s detrimental to your future financial success.

  • Jonna February 15, 2017 at 11:10 am

    We usually use the money to pay down high interest debt. I’m just looking forward to when the debt is gone and we can have some fun with the refund. It always seems like it’s gone so soon.
    Jonna recently posted…10 Must Haves for Your Personal Carry On BagMy Profile

    • Latoya Scott February 15, 2017 at 1:48 pm

      Le sigh…I definitely understand!

  • Tiffany February 15, 2017 at 1:42 pm

    These are really great suggestions!! I love the idea of pre-paying a few bills. I have never thought of that but will definitely think of putting my refund to use in that way this year.

    • Latoya Scott February 15, 2017 at 1:47 pm

      Yes, this is great especially if your income varies by month. Gives you a chance to stay caught up!

  • LaQuisha February 20, 2017 at 9:59 am

    Great uses, and maybe the most important thing is to keep away from people who have horrible uses for money so that they don’t become the bad influence for your tax refund!
    LaQuisha recently posted…Wifey: Valentine’s Day does not end the romanceMy Profile

  • Cleverly Changing February 20, 2017 at 12:10 pm

    Tax season is one of my favorite times of the year. I do need to learn more about how to invest my refund so that I can obtain greater dividends.
    Cleverly Changing recently posted…Unboxing Daily Goodie BoxMy Profile

  • Joanae February 20, 2017 at 12:39 pm

    This is amazing. People really need smarter ways to utilize their refunds. Thanks for this!
    Joanae recently posted…California Cruising in the Mazda CX-3!My Profile

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