Tax refunds can bring a windfall of extra income that might trigger the urge to splurge.
Around 80 percent of Americans get a tax refund each year!
This windfall of income can be a gift that keeps on giving, if used properly. If you're looking for some smart ideas on what to do with tax refund dollars, check these 5 ways to spend your money.
1. Pay Down Debt
Hands-down, the best way to spend your tax refund money is paying down debt, if you are carrying a balance. High debt balances can drag down many aspects of your life, most notably your credit score.
Paying down debt balances will increase your buying power by improving your credit score over time. A good rule of thumb is to keep your credit card balances below 30 percent of the overall available credit.
Credit utilization, or the percentage of credit you use based on what's available, make up 30 percent of your overall credit score. Paying down this debt will benefit you on two fronts – it will lower your monthly minimum amount due while also raising your credit score.
2. Contribute to Retirement Savings
If you're behind on your retirement savings, using your tax refund check to make a contribution is a smart way to get closer to your investment goals. Increasing your retirement savings can also provide you with tax savings when you file your return.
The saver's credit is available to anyone who contributes to a qualified retirement plan. According to the IRS, the amount of the credit is 50, 20 or 10 percent of your retirement plan, IRA or ABLE account contributions depending on your adjusted gross income.
3. Contribute to a 529 Plan
Your children are the future, and you should make sure your investments reflect this fact by starting a college savings account on their behalf, if you haven't already.
Both the state and federal governments offer tax credits for contributing to a child's higher education. The cost of setting up an account is usually free with a low minimum opening balance. Read our guide to Saving for College with a 529 Plan for more info.
4. Place Bills on Auto-Pay
There's something very calming about not thinking about bills each month. If you have a large tax refund coming, consider putting your bills and utilities on autopay for as long as possible.
Take this opportunity to save a large chunk of your weekly salary for a rainy day.
5. Take a Career Leap
When you get a windfall of money, make the money work for you by taking that career leap you've been dreaming about.
Travel to a conference for continuing education credits in your field, or take an online course. You might even cut back on your hours so you can focus on a new business venture idea.
The sky's the limit as long as you plan financially for the downtime if you won't be receiving a regular paycheck.
What to Do With Tax Refund?
Planning what to do with tax refund checks can be exciting. The opportunity for returns on any investments you make with your tax refunds is endless.
If you're not used to handling large sums of money, it might be helpful to check in with a financial advisor to learn all of your options. For more information and finance tips, check our blog for updates.