You filed your taxes and your refund is in your hands.
So, what do you plan to do with the extra cash?
Save it? Invest it? Buy that new laptop you've been wanting? Go on a tropical getaway?
While all these are popular things Americans do with their refund money, it isn't the smartest thing to splurge and spend all the money on things that probably aren't going to benefit you in the future.
TAX REFUNDS: EVERYTHING YOU NEED TO KNOW
Here are some ways to use your tax refund to benefit you in the long term.
Chris Whitlow, CEO of Edukate, shared with Fox Business that a great way to spend your tax refund is investing in yourself. Investing in yourself could mean so many different things. It could mean going back to school or taking a class for a skill you have always wanted to learn.
Your financial emergency fund should have three to six months of household income at all times, according to Whitlow. An emergency fund is money that can be used for any unexpected expenses that may come up. For example, if you experience car trouble and need to pay for repairs, or you have an unexpected medical bill. This could also be used to cover your expenses if you lose your job and while you are searching for something new.
Without an emergency fund, these unexpected but inevitable expenses that come up could put you into debt. Use your tax refund as an opportunity to add more of a cushion to your emergency fund or get one started. You’ll thank yourself later.
Even if you just put a tiny bit of extra cash toward mortgage payments, it can help you in the long term.
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If you have a monthly car loan, you can take your tax money to add some extra cash to those payments and get your car paid off faster.
It can be enticing to buy a brand-new car with your new money, but another thing you could do is use your money for a down payment on a used, more affordable car. If you’re making a big purchase like this with your refund money, make sure that you have enough money to keep up with the expense going forward.
Another popular and smart move to make with your refund is to add some more money to your retirement savings. It never hurts to invest in the future.
Now is a great time to make an extra payment on student loans since they are not collecting interest. Any money you put toward your student loans will go to the principal, so it may be wise to pay a little extra with your refund if you can.
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If you have any credit card debt, you can use your refund to pay it down. A common mistake people make with their refund money that isn’t the best idea, according to Whitlow, is putting the money straight into a checking account.
If you put the money into a checking account without any plan of how you want to spend it, it is likely that you will end up spending the money on something that you don’t need.
Along those same lines, don’t spend the money you are expecting from your refund before it makes it to your bank account. The amount could be different than you thought it would be, and you could end up spending more than you end up getting back.
If there are any improvements you want to make to your home, you could use this money to get that project started. If there is a massive improvement you want to make, like redoing a room, you could put this money aside for the future.
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Investing in the stock market is a good way to spend your refund money, according to Credible. If you have always wanted to get into investing, why not start now?
Of course, all of your money doesn’t have to go toward one thing. Maybe there are a couple of things on this list you want to do with your money. Or maybe you want to save some of it, but you want to treat yourself with some of it too. You can split up the refund however many different ways you want, in whatever categories you choose that work best for you.
