Any cash windfall can be an instant temptation to spend, especially when it comes to tax refunds.
For filers who don’t need to repay debt or fund a savings account, a money-smart way to use their tax refund is to complete some high-value home improvement projects. (Getty Images)
Fortunately, many people treat their kickback from Uncle Sam like a forced savings account, using it to pay off a chunk of debt or beef up their emergency savings fund. In a survey from TaxSlayer, 43 percent of Americans said they would save their tax refund while 42 percent plan to use it to pay off debt. But what about those tax-filers who are in a coveted place this tax season – those who have no debt to pay down and a healthy savings fund already sitting nicely in their bank accounts?
A few thousand bucks could easily cover a spring getaway or new wardrobe. But before you use your refund to splurge on some of the more obvious treats available to you, consider how many other other positive money moves you could make with your tax refund this year.
Invest in yourself. Use your tax refund to pay for a professional development course or sign up for classes that will teach you a new skill applicable to your career. These smart money moves could end up paying dividends as they’ll show your boss you’re committed to your professional growth, making a future raise or promotion a more likely prospect. Even if your employer doesn’t take notice of your initiative, think of it this way: You’ll be making yourself a more attractive candidate for your next job down the line.
If you work in a profession that requires a minimum number of continuing education hours each year, but you don’t have an employer who will cover the expense, consider using your tax refund to sign up for conferences or training sessions that will count toward that requirement.
Open a 529 savings plan for your child. As a parent, you’re always invested in your children’s futures, both emotionally and financially. Getting an early start helping them save for their future education costs not only helps spread the financial burden across multiple years but also ensures they’ll get a head start toward launching a successful academic career later.
One of the most effective ways to save for college is through a 529 savings account, which you can open with most brokerages, banks or credit unions. These accounts allow you to invest and potentially grow your money while ensuring any interest or principal taken out for postsecondary education will be free from taxation. And with the recent tax reform passed in late 2017, parents can now use 529 funds to pay for K-12 education as well.
States typically have 529 plans they recommend, but you don’t necessarily have to choose the account your state suggests. Ideally, you want to choose a plan that offers the best range of investment options with low fees. And there are other perks to consider, too, such as easy tools friends and family can use to make contributions around your child’s birthday, school graduations or holidays.
True, the cost of college is soaring. But you shouldn’t talk yourself out of setting up a college fund simply because you don’t expect to have enough saved by the time your kids graduate high school.
Make home improvements that are worth the cost. If your tax refund is large enough to finance a full kitchen remodel, you should probably speak to your accountant (and adjust your tax withholding). But a refund of a few thousand dollars could still easily go a long way toward adding improvements to your home. Remodeling Magazine’s 2018 Cost vs. Value Analysis reveals home upgrades that are actually worth the cost. It shows how relatively small repairs, such as replacing your front door with one made from steel or updating your garage door, are almost always worth the expense. A garage door replacement will set you back an estimated $3,470 and you’ll recoup nearly all of that cost. Replacing your door with a steel version will set you back even less ($1,471).
There are other upgrades that could be worth the expense because they bring you additional energy savings. You could upgrade a major kitchen appliance, such as your refrigerator, to a more energy efficient model, or install a new thermostat that gives you more control over the cooling and heating in every room of your home – even while you’re away from home.
Seed your own small business. Have you been dreaming of opening your own business and working for yourself? While being a small business owner is a lot of hard work, your tax refund could help you turn that dream into a reality. It can help you purchase initial inventory or supplies, or provide the funding you need to pay a website designer and marketing company to get your service-based business in front of potential customers.
Use your money to help others. If you feel like you have your bases covered with a strong emergency fund, limited debt and a fully funded retirement account, you might consider using your money to help others. Sites such as Kiva allow you to lend money to seed other small businesses. The business owner then pays that money back, allowing you to give once again – essentially recycling your money.