Thrifty Thinking: 10 Best Ways to Use a Tax Refund

Millions of Americans are filing their taxes and may receive a refund. Last year, the average refund was $2,763. Getting that much money dropped into your bank account can be a shock, so it’s easy to spend without thinking about it. Are you working on anything for tax season?

Here are some of the best things to do with your tax return from MyBankTracker.com, a financial comparison site.

1. Build an Emergency Fund - One of the first things to do with extra money is build an emergency fund. It can be the difference between handling an unexpected expense or going into credit card debt. Tip: consider putting the fund in an online savings account - they tend to have the best interest rates.
    
2. Pay Down Your Debt - If you’re in debt, use your refund to make an extra payment. When you do, it’s guaranteed savings by reducing the interest charged on the loan.
    
3. Fund Your IRA - Though retirement might be a long way off, it’s never too early to start planning. Use your tax refund to fund an IRA to help to reduce your tax bill next year.
    
4. Invest - If you have an emergency fund and funded your IRA for the year, you can invest and buy individual stocks/bonds. You’re most likely best off buying low-cost index funds that track the stock market as a whole. While you won’t beat the market, you’ll match it.
    
5. Pay for Home Improvements - A refund is a good start for a home improvement project or part of the down payment on the loan. Some projects add value to your home, so there’s a dual benefit.
    
6. Replace an Old, Inefficient Appliance - A major benefit of modern appliances is that they are more efficient. Buying a new refrigerator can save you hundreds of dollars a year through reduced electricity use.
    
7. Invest in Yourself - Use the cash to improve your career prospects. There are certifications for some jobs that may help you get promoted or increase your income. If yours doesn’t, you can pay for further education to increase your value to employers.
    
8. Save for an Upcoming Expense - If you know of large expenses coming up, put the refund in a savings account to have money ready. Many people fail to budget for irregular expenses like real estate tax.
    
9. Make a Charitable Donation - You can donate some or all of your refund to charity; use an organization like Charity Watch to research potential charities. As a potential benefit, you may be able to deduct contributions at tax time, assuming you itemize deductions.
    
10. Treat Yo’Self - Buy Something Fun - While you can benefit most by using your tax refund to invest or pay down debt, don’t discount the benefit of buying something fun! It can help relieve stress and may help avoid the temptation of spending on other things.

Tax Tip: Getting a big refund may be fun, but it means you gave the government an interest-free loan. If you kept the money rather than lending it, you could have used it to invest or pay down debt. Use the IRS Withholding Calculator to get your refund as close to $0.