What to Do With Your Tax Refund?

Your tax refund has finally landed in your bank account - yay! Now, the big question: what should you do with this money?  Without a clear plan, it’s easy for the refund to slip away on spending that doesn’t align with your long-term financial goals. To help you make the most of this one-time boost, we’ve put together 5 smart ways to use your tax refund. Whether you choose one option or a combination, these suggestions can help strengthen your financial future!

1. Pay Down Debt (prioritize high-interest)

Do you have high interest debt like credit cards, an auto loan, or student loans?  If so, consider using your refund to pay down the principal. Paying off debt faster means you’ll pay less in interest, and you’ll be free from the burden of high-interest payments sooner. It’s a win for your finances and peace of mind!

2. Build (or Boost) Your Emergency Fund

If you don’t have an emergency fund yet, now’s the perfect time to start one. If you already have one, use your refund to grow it! We recommend having at least 3-6 months worth of living expenses saved up in a high-yield savings account. These savings will be your safety net in case of unexpected expenses - helping you avoid going into debt when unplanned expenses arise. 

3. Increase (or Start) Your Retirement Savings

If you have not started an investment account for your retirement, then take this opportunity to do so now! Start by checking with your employer to see if they offer a 401(k) plan with an employer match. If so, contribute enough to get the full contribution match from your employer - this is essentially free money!

If you’re already saving for retirement, consider increasing your contributions. First, make sure you’re contributing enough to take full advantage of your employer’s match. Then, look into opening a Roth IRA (for tax-free growth) and consider contributing up to the annual limit (in 2025, the maximum is $7,000). If you’ve maxed out your Roth IRA contribution, you can continue contributing to your 401(k) until you reach the contribution limit (in 2025, $23,500).

4. Invest in Your Education

Why not use your refund to invest in yourself?  Consider enrolling in a course or seminar that can help you advance your current career - or even pivot to a new one. Gaining new skills opens up opportunities to negotiate a higher salary or start a side hustle or business to boost your income.

5. Treat Yourself

Are you crushing it with your finances - debt-free, with fully funded emergency savings and maxed-out your retirement contributions?  If so, it’s time to treat yourself! Take a vacation or purchase something you’ve had your eye on. Just be sure your purchase aligns with what truly adds value to your life, rather than being an impulse buy! 

Final Thoughts

We hope these tips help you mindfully allocate your tax refund and take meaningful steps toward your financial goals. Use this once-a-year opportunity to build momentum toward your path to financial independence!

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