It’s getting close to one of the most popular American holidays – tax refund day.
While it’s tempting to plan for it by creating a shopping list, there are plenty of smarter things you can do it with a sudden windfall. Here are 10 of them.
1. Make your home more energy efficient
There are several small things you can do to significantly reduce your monthly energy bill. Replacing all of your lightbulbs with CFLs, putting in programmable thermostats, air sealing your home and getting a blanket for your water heater are just a few. Doing a selection of these can help lower your monthly costs, letting you keep more of your paycheck.
2. Do a home improvement project
In the same vein, winding your windfall into freshening up your house can help increase the value of your home. New kitchen cabinets, a revitalized bathroom, repainting some rooms, or a new carpet can add to your home’s value, which is important if you’ve got a move coming up. Fixing something that had been an eyesore for some time can also make you feel better about your home.
3. Buy something that encourages eating at home
An appliance like a deep freezer or a stand mixer is a slow-paying investment. But as you begin to use it more to eat at home, you’ll be going out to eat that much less.
Being able to stock up on meals that you can just pull out of the freezer and put in the oven is a good step toward saving money.
4. Saving for a rainy day
Many people don’t have enough savings to combat a sudden job loss, medical emergency or major repair. If something serious happens, you can get stuck with short-term loans at high interest rates or huge credit card balances.
Your tax refund can start or build on your “just-in-case” fund. The IRS allows you to split up your refund in up to three accounts via direct deposit. That’s a perfect opportunity to stash some funds in a savings account that’s inconvenient for you to access, assuring that the money stays out of sight and out of mind until you really need it.
5. Pay off debt
The math on this one is straightforward. It doesn’t make much financial sense to put the IRS check for $3,000 in a fund yielding 1% interest and maintain a $3,000 balance on a credit card account charging 18% interest. Pay off that credit card and put more money in the bank.
6. Help your kids prepare for college
Setting up a 529 plan can help your children or grandchildren afford a higher education in an era where rising costs leave many saddled with massive debt along with the diploma. In some cases, you may even be able to pick up a deduction on your state income taxes for your trouble.
7. Invest in the stock market
The stock market has been roaring in recent months, and historically it has offered a greater return on investment than savings accounts, CDs or bonds.
While its fluctuations make it a risky choice for money you’ll likely need in the coming months, the long-term outlook makes it a better option if you don’t have an immediate financial need. Pick individual stocks or select an index fund that moves up and down along with the market.
8. Give your career a jump-start
Does it seem as if all the new hires have programming skills or UX/UI design experience? Take the time to invest in yourself and take some courses in subjects important to your career.
By taking advantage of the Lifetime Learning credit, you may be able to use the costs of the course to take money off your taxes again next year.
9. Buy life insurance
It seems like something for old people, but life insurance can be a crucial protection for your family. A term life policy can provide protection for loved ones at a relatively low cost.
For the cost of a few hundred dollars, your tax refund can allow your family to maintain its standard of living if the unthinkable happens.
10. Seed your own business
If you’ve got the urge to start a side-hustle, this is the perfect fuel for getting started. You’ll be able to deduct your expenses next year, and lay the foundation for more income.
A tax refund can provide the seed money to build up inventory, design a website or online store, or otherwise allow you to turn a hobby into a money-making enterprise.