So you’ve filed your taxes and now you’re waiting for that check. We’re going to let you in on a little secret: your tax return is simply the government giving you back what is rightfully yours. Yeah, it feels pretty great to get a sizable check with your name on it but don’t be so quick to treat yourself. Though it might be rather tempting to hop online and nab those Coachella Festival tickets or make that big ticket purchase, take a moment and consider the smarter ways to use that money.
1. Pay Off that Credit Card
With interest rates ranging from 13-16% (and that’s on the lower end!), you’ll want to pay that credit card off sooner rather than later. The average tax refund is about $3,000. Imagine having $3,000 dollars less in debt. What a good feeling that would be!
2. Open Up a Roth IRA
Not sure what that is? It’s basically an IRA that collects interest over time that doesn’t have a minimum dollar requirement to open. If need be, you can pull out that money (not including the interest that it’s accrued) penalty-free before you hit senior citizen status.
3. Start an Emergency Fund
Nobody could have really anticipated the economic devastation of the Great Recession back in 2008, and we shouldn’t be naïve to think that our financial stability couldn’t be compromised at some point down the road.
Experts say that it’s smart to have a fund that’s equal to what you’d need to get by for about 4-6 months without an income. While it may be difficult to imagine the worst case scenario, it’s better to play it safe because the alternative could land you in debt that is hard to get out of. Look at it this way: even if you never experience any financial hardship over the coming years, having money in reserve is always a good thing.
4. Handle Your Big Need
We’ve all had those unexpected expenses arise as a result of our car breaking down or a trip to the dentist that leaves you with a large bill. If you’ve been putting off paying for something that you really need due to financial hardship, then your tax refund may be very timely and there’s no shame in spending it right away.
5. Give Back What You Got
If you’re feeling like you are at a pretty comfortable place financially, donating this money is not only one of the smartest things you can do, it’s arguably one of the most fulfilling. Whether you choose to donate your full tax return or just part of it, there’s bound to be a charity or cause whose work you’d like to support. If this sounds like you, checkout the charitable organization database of registered 501(c)(3) public charities in the U.S. Perhaps your local dog shelter or favorite radio station could use your support. Giving back what you got back can feel pretty good too.
While we all hope that we’ll get a refund after filing our tax return, this may not be the case every year. All the more reason to spend that tax return mindfully and in a way that is most fitting to your unique circumstances.