6 Ways to Spend a Tax Refund that You Will Thank Yourself for Later

Managing Money / Tuesday, March 31st, 2015

“Do something today that your future self will thank you for.”

Are you getting a tax refund this year?

It’s very unusual for us to get one because we’re self-employed; any refunds get applied to next year’s taxes.

But this year, through a very specific set of events, we got a $2000 refund from the state. We put it into our emergency fund, since a tax refund is found money and that’s the job we’ve given our found money to do.

But before I transferred the money, I fantasized about other places we could put it – the kind of places that have you feeling good, because you’re taking control of your finances.

1. Put it towards your smallest debt.

By applying your refund to your smallest debt, you’ll get a big psychological boost from seeing that debt paid way down, or possibly eliminated. Then look at the interest rate you were paying on that debt and congratulate yourself for earning that guaranteed return on your money.

2. Start or add to your child’s college fund.

Tuition rates have been increasing at twice the rate of inflation, so it’s smart to get that money invested and working for you now. Then you can breathe the tiniest bit easier when you see those scary cost of college reports on the news.

3. Add to your retirement fund.

If you invest $2000 for the long term and earn a very conservative 6%, you will turn that $2000 into $6600 after 20 years. $8900 after 25. And that’s without taking into account any retirement account tax advantages.

4. Start a car fund for your next car so you can pay cash.

By paying cash for a car, you’ll save on interest. But the biggest financial benefit might be that you buy a less expensive car, since you’ll be looking at the total cost (which hurts more) and not the monthly payments. A less expensive car translates into cheaper insurance and taxes too.

5. Use it as investing fun money.

I don’t mean investing in your brother-in-law’s latest business venture or that stock the guy at work said was a sure thing. I’m talking about something a little safer, but still fun to follow.

If I had gone this route with our refund, I would have bought Costco stock, since we spend enough of our time and money there and might as well own a piece of the place. At today’s prices we could have bought a little more than 13 shares of COST with our $2000. Another fun money investing idea? Dividend Aristocrats.

6. Donate to your favorite cause.

Because giving feels good. It just does.

Did you get a tax refund this year? Whether you did or you didn’t, what ideas can you add to this list?

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