According to the Internal Revenue Service, the average tax refund was just over $3,000 in 2018. Many Americans treat their tax refund as a gift. However, a tax refund is not a gift. Tax refunds are the government’s way of returning money that workers overpaid in taxes throughout the year. Since tax refunds are workers’ hard-earned cash, this list has ideas for spending the funds wisely.
Start an emergency fund
Personal finance experts agree that building an emergency fund should be everyone’s top financial priority. But, most experts don’t agree on how much to save. The general rule of thumb is to save the equivalent of at least three months of essential expenses. Having this much in your savings may prevent someone from turning to debt in the event of an emergency.
Save for retirement
A retirement saving vehicle like an IRA has tax advantages. Funds in a Roth IRA grow tax-free while contributions to a traditional IRA provide tax deductions in the year they’re made.
Provide for a child’s education
Saving for a child’s college education also can be done in a tax-advantaged way through a 529 plan.
Plan for a major purchase
Saving for a major purchase such as a vehicle, home, or vacation may be easier with a dedicated savings account.
Pay down debt
A $3,000 tax refund is probably not enough to eliminate most people’s debt, but it would make a significant reduction. Paying down one’s highest-interest debt, which for many people is credit card debt, makes the most financial sense.
Make health a priority
People who have skipped medical, vision, or dental examinations due to their expense could schedule the necessary appointments.
Learn new skills
New skills have the potential to increase income if those skills are used to get a better job or start a business.
Make home improvements
Homeowners can protect the value of their investment handling neglected home repairs. If nothing needs fixing, replacing outdated appliances may provide significant energy savings.
Be safe on the road
Road safety requires proper vehicle maintenance. Noisy brakes usually are screaming to be replaced. Worn tires can slip. Taking care of car repairs reduces the risk of an undesirable event on the road.
Treat yourself to an experience
Buying an experience may provide more enjoyment than getting more stuff. Experiences to consider are trips, museum memberships, or season tickets for professional sports.