Making the Most of Your Tax Refund Money

If you're getting a tax refund, you might already be spending the money in your mind. Although it's tempting to start splurging on luxury items or exotic vacations, you could benefit from pausing and asking yourself: What is the smartest way to use this money?

The key is to figure out how you can turn your refund into a you fund. Here are a few ideas to consider:

Get rid of some debt. If you're carrying credit card balances or student loans, having extra cash to put toward it can save you tons of money in future interest payments. That's because paying a lump sum will lower the amount of interest you'll have to pay, and you can more aggressively attack the principal balance. The faster you get down to zero, the less you’ll have paid over the life of the debt. Smart move!

Prepay a bill. Tackling your kids' full school tuition amount or annual insurance premiums can put more cash into your pocket year-round. It always feels good to take a financial burden off of your plate, and in some cases, you might even earn a discount if you pay in full.

Make a home or car repair you've been putting off. Maintenance is important for preventing a more costly breakdown in the future. So if your water heater is aging, or your roof needs replacing, consider spending your tax refund on those updates. Other preventative measures you can take when you have some extra cash on hand might be to replace worn appliances, take your vehicle in for a tune-up or new tires, and/or upgrade to smart home technology.

Take care of yourself. If you've been in need for medical or dental treatments but haven't done it because of the cost, now is the time. Just like your house and car, putting off health-care matters can lead to bigger problems and potentially higher costs down the line. You might also consider trying a wellness program like acupuncture or some type of therapy that your health insurance might not cover but could improve your mind and body health.

Add to your rainy day fund. If you don't have anything pressing to take care of, putting a portion of your tax refund into a savings account will help you manage small emergencies as they happen. Even a few hundred dollars can give you peace of mind should an unexpected financial obligation arise. It can also help prevent you from having to use your credit card or borrow money.

Invest in yourself. If you have an IRA, this could be the perfect opportunity to bump up or even max out your contributions for the year. The younger you are, the more years that compound interest has time to work its magic.

Budget for fun. After choosing one or a combination of the practical options above, still try to set aside a small amount of your refund to do something nice for yourself and your family. Whether it's concert tickets or a spa visit, there's nothing wrong with enjoying a no-guilt splurge once in a while.

Now that you know some practical ways to use your tax refund, find out more about investing your money to really make the most of your hard-earned cash.

Related Topics: Saving Money