UPDATED: Mar 26, 2020
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Spring is here. Tax season is wrapping up.
That means for some people—those who will be getting a sizeable tax refund anyway—it will feel like Christmas in April.
If you’re one of the lucky ones with a big check from the IRS coming your way, how will you spend that money?
My guess is you have a few thoughts of your own on how to use that extra cash, but I thought I’d share a few ideas as well.
Ways to Make Your Tax Refund Dollars Matter
1. Pay Down Debt
While dollar signs and visions of a pair of Louis Vuitton shoes or winning big playing blackjack in Las Vegas may be dancing in your head, you might want to take a deep breath and think practically for a moment. If your credit card debt resembles the $7,743 per card that usually carries a balance1, you might want to consider knocking that debt down before spending your return on frivolous goods and entertainment.
2. Invest Them
Did you know that according to statistics from 2014, 40 percent of working Americans are not saving for their retirement2? If you’ve got a 401K or IRA, investing some of your tax refund dollars there would give you a shot at seeing them grow over the long haul. And your contribution to a traditional 401K or traditional IRA is tax deductible. It will reduce your taxable liability for either the tax year that just ended or the current tax year depending on whether you make your contribution before or after April 15.
If you’ve got a 529 savings plan set up to help with your child’s college education expenses, you might consider putting some of your refund toward that as well.
Before making any investment, it’s best to get advice and guidance from a trusted financial professional who can explain all of your options and guide you to the right investment choices for your situation.
3. Invest in Yourself
Another idea for spending your tax return dollars more wisely: invest in self-improvement, either professionally or personally. Enroll in a college course at a local university or through a reputable online institution, register to attend a conference that will expand your knowledge, or sign up for some other program to take your skills and knowledge to a new level.
4. Buy Life Insurance
Last but certainly not least, consider giving your family financial peace of mind with a life insurance policy. Having life insurance can help your loved ones make ends meet if the unthinkable happens to you and you’re no longer there to provide for them. If spending all of your refund on life insurance doesn’t appeal to you, you might want to explore term life insurance. It’s more affordable than permanent (whole and universal life) policies, so you might have some of your refund left over to treat yourself to something special. Term life policies provide flexibility with coverage options that typically last 10, 15, 20, 25, or 30 years. You can even get policies for as short as one year or five years. To see how cost-effective a policy can be, get a preliminary term life quote online or talk with a trusted term life professional about your options.
If you’re anticipating a tax refund this year, wouldn’t you like your dollars to go a little farther? As you decide on how to spend them, try to think beyond short-term gratification and focus on putting them where they might benefit you and your family most in the long term.