“6 Best Ways to Spend Tax Refunds” post was created because Uncle Sam is now open. Yes, it is tax season and many people will be filing their tax returns and waiting for their tax refunds. So, it is really fitting to create a post related to tax refunds. This posts provides the readers ways that they can use their tax money that will provide more benefits in the long run. 

It’s tax season once again and many people will be receiving their long-awaited, hard-earned tax refunds. Some people will spend those refunds to buy gadgets and some will spend the money to pay for outstanding debts.

Ways To Spend Tax Refunds

There really are thousands of ways how to spend the tax refunds. But before spending those refunds, it is best to sit down and figure out where the best places are to maximize the value of your money. Here are ways to spend tax refunds wisely.

1. Pay your emergency fund

If you used your emergency fund during the past year, it is now the time to pay your emergency fund back even though it really isn’t a loan. This fund is important to shelter you and your family when rainy day comes (e.g. job loss and medical bills).

According to Bankrate, at least 60% of Americans do not have enough to cover unexpected expenses. It is advisable that your emergency account be equivalent to 3-6 months’ worth of living expenses. Paying your emergency fund truly is one of the best ways to spend tax refunds.

You may argue that credit cards and loans are there to help you during emergencies; however, these are debts that need to be paid on-time and in-full to avoid fees and/or penalties.

If you use debt to cover your needs and all these sources of debt have been maxed out, where else do you go and what else can you do when credit card and loan dues come knocking on your door? It is a good practice to use emergency fund during difficult situations and replenish it when you have extra money.

2. Open or fund your investment Retirement Accounts (IRAs)

Save for your future. If you want to retire in the future, one of the most popular ways to fund retirement account is through IRA. Remember that even a small, incremental investing can make a big difference in the future thanks to the compounding interest.

If you’ve already put in money in your emergency fund, then, consider investing in Traditional IRA or Roth IRA or both. Please note that there are IRS rules regarding opening and/or maintaining the Traditional and Roth IRAs.

With traditional IRA, the contributions are tax deductible in the state and federal level but withdrawals are taxed. On the other hand, with Roth IRA, contributions are taxable but withdrawals are generally free of tax.

3. Pay your debt

According to NEAmb.com, many experts in finance rank paying down debt at the top of the “smart refund spending ideas” list. If you didn’t have enough money during the past year, chances are you used your credit cards and other forms of debt to pay for your needs and wants. Now is the best time to pay them off.

It’s a good advice to first pay the loans and/or credit cards with high Annual Percentage Rates (APRs) as paying them will reduce your interest payments and could potentially boost your credit score.

4. Invest in your (continuing) education

One of the best ways to spend tax refunds is through investing in your education. Sometimes, in order to move up the career ladder, change career or get another job, it is essential to continuously educate yourself.

You can either enroll in a couple of classes, training, and certifications, which will boost your resume as well as your knowledge and/or expertise. Instead of spending your tax refund on unnecessary products, you can take advantage of your tax refund to educate yourself for success.

According to Education Corner, the following are some of the benefits can be derived from continuing your education:

• Continuing education is a way to develop knowledge or skills for a career transition
• Continuing education can increase marketability of a person in the job market
• Continuing education can be a way to help a person learn more about his/her personal interests

5. Invest in the stock market

Instead of you working for your money, let your money work for you. By investing in the stock market, you have a chance to grow your money exponentially.

If you made a one-time investment of $1,000 and let it grow for 30 years at a return rate of 10%, you would have around $17,450, according to investor.gov. But, of course, the stock market is also a tricky market to be in because you may also lose money and the return rate of 10% is not guaranteed.

It’s better to weigh the pros and cons of investing in the stock market before spending your tax refunds somewhere else.

6. Pay yourself last

One of the ways to spend tax refunds wisely is through paying yourself last. You’ve worked hard for that money. Technically, it’s not Uncle Sam that’s giving you the money. It is the money you gave to Uncle Sam in the form of tax. It so happens that you overpaid Uncle Sam and that’s why you are getting your refund.

It’s never a bad thing to splurge on things from time to time. It is your hard-earned money and you can spend it the way you want to. Spend what is left of your tax refunds after putting money in emergency fund account, opening up or funding your IRA, and others. The golden rule is to not overspend.

If you’re thinking where the best places are to park your money, the information I detailed above are the ones that can provide you with more benefits in the long run. If you always get tax refunds every year and it seems that your situation hasn’t progress or has progressed a little bit for the better, now is probably the best time to try something new and new means the ones I indicated.

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