10 Smart Ways To Use Your Tax Refund

By now, all Americans have received their 2019 W2 forms and related tax information and it’s time to file taxes. According to the IRS, the average tax refund last year was just shy of $3,000.

That’s a lot of money for most households!

Here are 10 smart ways to use that extra infusion of cash.


1. Pay down debt, especially high-interest debt

Take a look at your debt. Do you have credit card debt? Student loans? A car payment?

On Average, American adults have $5,673 in credit card debt and student loan debt is about $31,172 per student with an average monthly payment of $393. That’s an incredible about of financial burden.

Assess your family’s debt with the highest interest rates. Paying down this debt first will result in the most savings long-term. Not to mention, hopefully take a weight off your shoulders.

2. Create or contribute to an emergency fund

No one likes to think about the financial emergencies that can come up, but it’s critical to plan ahead. Experts suggest an emergency savings of three to ideally six months’ worth of income saved up for a rainy day.  But the reality is that 40% of Americans cannot cover an unexpected $400 expense. If you are receiving the average $3,000 tax refund like most Americans, it can go a long way in safeguarding against a financial crisis.

3. Create or add to a savings account

In addition to an emergency fund, start a savings account to plan for anticipated expenses. Create a separate account for each savings plan you create and add some money to each. Maybe you’re saving up for a new car, house renovations, or planning for a vacation - having a dedicated savings account for each is a great way to track your progress and plan for the future.

4. Contribute to your child’s 529 plan

College is an ever-increasing expense, so it’s never too early to start saving for your children. According to College Board, the average cost of tuition for a public-four year degree in-state is $9,410 per year and for out-of-state students, that number tops $23,890 per year. Money in a 529 plan grows tax-free, and withdrawals for qualified education expenses are not taxed either, so it’s a great way to use a tax refund to invest in the future.

5. Invest in your retirement through a traditional or Roth IRA

You may already be contributing to a 401k Plan, but you may also want to add money to a traditional or Roth IRA to increase savings for retirement. A traditional IRA will allow you to contribute pre-tax dollars and deduct your contributions based on certain income criteria you would need to meet. A Roth IRA, allows for contributions of after-tax dollars and allows you to take tax-free distributions at retirement age. The annual maximum contribution you can set aside for both Traditional and Roth IRA’s in 2020 is $6,000 for anyone below the age of 50 and $7,000 if you are over the age of 50. Roth IRA’s also have contribution limits over certain incomes.


6. Invest in your health

If you are in a good financial position, consider setting aside some funds for health. If you have access to a Health Savings Account (HSA), consider making a contribution to it. An HSA is funded with pre-tax money, which lowers your overall tax bill. The money can then be used tax-free for approved health expenses such as doctor visit, lab work, exams, and medications. The best part about an HSA, is that once you reach age 65, you can withdraw the money for any purpose. So, an HSA can double as a health and savings account.

You may also consider purchasing a gym membership or exercise equipment for a year-round healthy lifestyle. An investment in your health now will pay off in the future.


7.  Take your skills or hobbies to the next level

Are there costly certifications you would like to complete to advance your earning potential? Put your tax refund to work for you and your family! Investing in master classes, purchasing better equipment for your hobby, or replacing worn or outdated gear are also excellent uses of a tax refund.


8.  Save the planet right from your home

Environmental issues are a hot topic these days and there are some simple steps you can take to create an environmentally friendly home. Replacing older appliances or lights with Energy Star certified bulbs not only helps the planet, but can save an average household about $575 per year. Solar panels also have the potential to not only provide enough power for your entire house, but also the ability to sell excess power back to the electric company!


9.  Invest in experiences

Taking time to relax and enjoy yourself is always a good break from the hustle and bustle of a busy life. If you are in good financial shape, you might want to utilize your tax refund for some fun. If your city has a zoo, museums, amusement parks, aquarium or places your kids might enjoy, consider purchasing a membership to visit whenever you want. If you are in for a little more adventure, consider traveling to new places or learning about a culture you have always wanted to know more about. The possibilities here are endless and the memories you create will last a lifetime! 


10.  Make a charitable donation

There are thousands of causes you can contribute to and not only will you be helping someone else, but the feeling of doing good is priceless. Explore a charity that you feel drawn to and find out how you can help.


Looking for more ways to make informed financial decisions? Brighton Center offers a variety of financial education and coaching options along with serveral asset building programs. 

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