How to spend your tax refund

Tax Season is OVER! Congratulations, you survived!

Photo by krakenimages on Unsplash

If you are getting a tax refund, whether it's extra pocket change or a substantial amount, that is a great opportunity to make an impact on your financial future. Rather than frittering it away on a 65-inch tv (even though this can be pretty cool!), consider the following five ways to utilize your tax refund

Whether it's a little extra pocket change or a substantial sum, it's your chance to turn financial fortune into an investment in yourself. So, let's dive into five vibrant and uplifting ways to maximize that refund and set yourself up for a brighter future:

 5 Ways to Maximize Your Tax Refund

1. Pay down any debt: Tackling debt should always be a priority. Consider the snowball or avalanche method to systematically pay down debts, depending on your personal preferences and financial situation.

   The Snowball method tackles the smallest debts first, irrespective of interest rates. By prioritizing debts based on the amount owed/the balance size, you are able to have quick wins as you conquer smaller debts.

   The Avalanche method focuses on tackling the debt with the highest interest rates first, aiming to reduce the long-term financial burden. While the Avalanche method may lack the immediate psychological rewards of the Snowball approach, it is often more financially efficient. By strategically tackling high-interest debts, you stand to save considerable amounts on interest payments over the course of their debt repayment journey.

   Start tackling debt by paying off high-interest credit card balances or loans first. Not only does this alleviate financial stress, but it also saves you money in the long run by reducing interest payments.
   
   

2. Start / build an Emergency Fund : Building and maintaining an emergency fund is essential. Without one, an unexpected expense can send you on a debt spiral. In fact, a recent survey by Payroll.org highlighted that 72% of Americas and 47% of Canadians (Leger Poll) are living paycheck to paycheck.  So, how much should be in an emergency fund? Some money experts say that an emergency fund should contain about 6-8 months worth of living expenses.

   Trust me, I know how hard it is to save so using a portion of a tax refund can be a great way to bolster this safety net. This way if you have a medical emergency or job loss, having this cushion can prevent you from resorting to costly loans or going into credit card debt.
   
   

3. Invest in yourself: Education is an investment in yourself that pays dividends throughout your life. Use your tax refund to enroll in a course, workshop, or certification program that enhances your skills or knowledge in your field.
   Alternatively, invest in learning a new skill that aligns with your interests or career aspirations. The return on investment from upgrading your skills can lead to better job prospects and increased earning potential over time.
   
   

4. Build your retirement savings: It's never too early, or too late, to start saving for retirement, and your tax refund can jump-start your efforts. Contribute to a retirement account such as a 401(k), RRSP, IRA, TFSA, or Roth IRA.
   
   Be sure to take advantage of employer matching contributions if available, as this is essentially free money. Even if retirement seems far off, the power of compounding interest means that the sooner you start saving, the more time your investments have to grow.
   
   

5. Splurge a little bit!: Life is for living. So, consider using a portion of your tax refund to invest in experiences or purchases that improve your overall well-being and bring your joy. This could include a gym membership, wellness retreat, a [piece of clothing that you’ve had your eye on. Investing in self-care not only enhances your quality of life but also contributes to your long-term happiness and resilience.
   So go ahead, splurge on experiences that light up your world—you're worth every penny!

The Bottom Line

Your tax refund isn't just a financial windfall—it's a great way to help you boost your financial future. By prioritizing debt repayment, bolstering your emergency fund, investing in education or skills development, saving for retirement, and having a bit of fun, you can make the most of this financial windfall and set yourself up for future success. Take the time to evaluate your priorities and make informed choices that align with your present and future goals and your values. Your future self will thank you.