The question has been debated for what seems like forever. What should you actually do with your tax return? Like most things in the financial spectrum there isn’t really a black and white answer to this question. It largely depends on your specific financial situation. However, here are a few good ways to use that tax refund.
1.) Save It
Probably the least fun thing to do with your tax return is to save it, but saving your tax return could be a very nice head start or addition to your emergency fund.
Emergency funds are becoming more of a debated topic because of the current low interest rate environment. However, if you commit all of your savings to other investment sources, those funds may not be immediately available (because of either or both availability restrictions or fees). Funds on deposit at your financial institution will likely be more readily available depending on the account they are deposited in.
Vacations are awesome! It's likely the most fun thing you could do with your tax return. Some people might think that isn't a good way to spend your tax refund. The beauty of it is, your tax return is your money and you can do with it what you please. Also, vacations are good for you. Everyone needs some time to decompress every now and then.
According to smartasset.com the average tax refund for Missouri residents is $2,547 and $2,835 for Illinois residents (2014 tax returns). You'd probably be surprised how far that will take you on a vacation package. All-inclusive trips to Mexico can be very reasonable.
3.) Purchase a Vehicle/Vehicle Repairs
Making necessary repairs to our vehicles is something many people put off as long as they can. Using your tax return to make those repairs and make sure your car is running in top condition could keep your vehicle running better and longer.
You could also use your refund as a down payment, or to pay sales taxes, on a new vehicle. Doing this could help you avoid carrying any negative equity into a new auto loan, and make you less likely to be upside down on your next car.
No matter what you decide to do with your refund remember - Some people make the mistake of thinking that their tax refund is "extra" money they get from the government every year. The truth of it is that your tax refund is your money that the government has been holding for you. The ideal situation would be to get as little of a refund as possible. That would mean that you're maximizing your salary throughout the year. Don't treat your tax refund as a bonus, this of it as exactly what it is called - a refund. If think of it like that and spend it as such, you can't go wrong.
If you didn't already have plans for your tax refund, hopefully this gives you some ideas. Happy refund season!
- Sam Davis
Health Care Family Credit Union