As tax day zeros in on us, you may be wondering what you should do with this year’s tax refund. If you anticipate receiving a refund over the next few weeks and spent last year’s return haphazardly, here are five options that are sure to last longer than any spending spree. For many of you this is the only time during the year that you’ll have access to a lump sum of money, so dividing it up to help you accomplish multiple goals may be a favorable option. We’re even going to solve the ongoing debate of whether to save first or pay down your debts.
Based on the IRS average refund amount of $3,120
5% – Start saving for the holidays. One hundred and fifty-six dollars to start will keep holiday spending from taking you by surprise this December. If you can commit to add the same amount every month for the remainder of the year, you’ll have more than $1,400 in cash for your holiday budget.
10% – Do something nice for yourself. That’s $312 to spend any way you like. Whether you choose to do a little shopping, visit a day spa, or use it as a down payment toward a dream vacation is completely up to you.
15% – Invest it. You’ll have $468 to start. You may consider investing in a hobby that has potential as a side business or take that certificate course you’ve been postponing. No matter which option you choose, pick something in this category that will lead to a return on investment. If you always wanted to open a personal brokerage account, now may just be the right time. First, take some time to learn about investing. Then decide if you will open a brokerage account with a firm like TIAA.
30% – Save it. That’s $936 to start an emergency fund if you don’t have one already, or an extra layer of padding to boost your account if you’ve already been building one. The unemployment rate may be down to 5%, but can you survive for six to nine months on no income or would you need some supplemental cash? Saving for a rainy day should always be a top priority.
40% – Pay down debt. $1,248 is a nice lump sum to put toward paying down a credit card, car loan, or student loan. You may ask why not save this or combine this with the savings to pay down even more debt, but saving cash allows you a buffer if you hit an emergency so you won’t have to rely on debt again, it’s better to apply funds to both categories.
Have you received your refund yet? How will you spend it?