Wondering what to do with your tax refund? Sis, I know. That deposit hits and suddenly your cart is FULL. I’ve made my share of useful amnesia purchases, so no judgment here.
But that refund is a real chance to make a dent in your goals. Here’s how to split it so future you says thank you.
Big sis, not a financial advisor or tax pro. This is a starting point, not personal advice.
First, what a refund actually is
A tax refund means you paid more tax during the year than you owed. The government is handing you your own money back, with zero interest.
If you get a big refund every year, you could update your W-4 with your employer so less is withheld and more lands in each paycheck. Self-employed? Your version of this is getting your quarterly estimated payments closer to what you’ll actually owe.
Give every dollar a job
Decide where the money is going BEFORE it hits your account. Here’s an order that works for a lot of people:
1. Pay down high-interest debt
Credit cards and other high-interest balances cost you the most. Knocking them down is one of the few guaranteed returns you’ll ever get.
2. Build or top up your emergency fund
A common guideline is three to six months of expenses. No cushion yet? Your refund can jump-start it.
3. Invest in future you
Consider putting some toward retirement, like an IRA. If your refund comes before the tax filing deadline, you may even be able to count an IRA contribution toward the previous tax year. Check the rules for your situation.
4. Invest in your business or skills
A course, a certification, better equipment or a tool that saves you hours every week. Spend it on something that helps you earn more.
5. Save for a big moment
A dream trip, a move, starting a family. Put it in a separate savings account with a name on it so you’re less tempted to raid it.
6. Keep a little for fun
Yes, really. Setting aside a small slice, say 10 percent, to spend guilt-free makes it way easier to stick to the plan for the rest. A budget with zero fun doesn’t survive past March.
If you freelance or run a business
Before you spend a dime of that refund, make sure you’re covered for this year’s quarterly estimated taxes. A refund today won’t help much if you’re short when the next payment is due.
Your refund checklist
- Decide your split before the money arrives
- Move each piece into its account the day it lands
- If your refund is big every year, look at adjusting your withholding or estimates
- Talk to a tax professional if your situation changed this year
How you use this refund can set up the next one. Make it count, sis.