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Tax refunds can seem a bit like having a birthday or winning the lottery every year for those who are eligible to receive one. Because the refund includes a lump sum of cash that usually doesn’t have any other commitments or restrictions on it, recipients can often use the funds for big purchases, financial decisions or to pay down debt. Even the smaller of refunds usually involve a couple hundred dollars per taxpayer, so refunds are definitely looked forward to. People have different ideas how to use their refunds, and we found some of the ones discussed in a recent CNN Money article pretty interesting. Read on for some ideas if you’re still deciding how to spend your hard-earned money.
Putting the Money Toward a Big Purchase
The most common tax refund use tends to be putting the money towards a big one-time purchase. Electronics, furniture, vacations and jewelry tend to be the big items bought, being durable and capable of lasting for a long time. Often these purchases are planned as soon as a person becomes aware of a refund being due. In the CNN article, we learn about Floridian Dave Payne who is using his refund to buy an engagement ring for his accountant girlfriend who helped him get the refund in the first place!
Paying Big Bills
Another common use for tax refunds is to wipe out big bills or liabilities when the refund is sizable. The most common debt tends to be credit card balances, but it can also include paying off the remainder of a car loan or something similar. In some cases, parents may use the funds to help finance tuition for their children, relieving their own monthly paychecks of the cash flow hit and paying the school bill in full.
Making a Life Change
A number of folks will use the immediate freedom of a tax refund to make a life change. This can include buying a new pet, going on a vacation, paying for a wedding, buying needs for a new baby room, or undergoing a big home renovation. All of these items can be one-time changes that are long term with regard to the benefits, and the tax refund provides a helpful boost to make those changes happen.
Building Your Savings
While not the most common approach people take with a tax refund, putting money away into savings or investments can be extremely valuable. For anyone who wants to set up an emergency fund for a bad day, a tax refund is a perfect opportunity. It has no other liabilities and comes as a lump sum. Some refunds can quickly create a buffer fund to be used during an emergency or last-minute critical need.
Tax refunds often offer many people unique and immediate benefits. There’s no standard right or wrong way to use them. It’s often advisable to at least put some of the money in savings, but it’s a personal preference at the end of the day.