7 Smart Ways to Use Your Tax Refund Check
In 2016, the IRS returned over $426 billion to 122 million taxpayers in tax refunds. If you are one of the millions receiving a tax refund check this year, we’ve got some ideas on how to make the most of your tax return from the IRS – from prudent tips like improving your credit score to building a financial cushion or even making your refund stretch further on your next shopping spree.
In this guide, we’ll walk you through 7 ways to use your tax refund check, including:
1. Building yourself a cushion
Cushions are nice to have, both on your seat and in your bank account. Financial experts say that if possible, we should have an emergency fund for “just in case.” You never know what unexpected expenses or life challenges may arise in the future. As such, it’s a good idea to have at least six months’ worth of expenses set aside in a savings account. This could be a great place to put your tax refund. Your future self will thank you.
2. Insuring your future
You may have already considered building yourself an emergency fund, but it might be worthwhile to consider a safety net too. Making sure you and your family are adequately insured may save you headaches down the line. Events such as floods, earthquakes, and maintenance damage are not traditionally covered under normal insurance policies. Adding specialized coverage such as flood insurance could save you from problems down the line. Some traditional insurance policies also allow you to opt in to receive further coverage for emergencies like freezing of plumbing or maintenance damage. The best choice may be to consider both additional savings and extra insurance.
The ability to recover from unexpected setbacks could further protect your financial security. Make sure to discuss your needs with an insurance professional.
3. Investing in your home
Maybe you live in an area where you have a low risk of flooding or have robust insurance, but there are other ways to use your return to benefit the place you call home. If you still want to put your tax refund check to work toward your household, consider investing in your home.
If you’ve been putting off renovating your house to be more energy efficient, your tax refund could be the perfect excuse to bump that to the top of your list. What’s more, investing in solar energy systems, such as solar water heaters, can help you save money on utility bills and may even qualify you for a tax credit next year – leading to a bigger refund. Spend a little today and potentially save a lot tomorrow.
4. Rebuilding your credit
If you don’t have good or excellent credit, getting a loan or even applying for an apartment can be difficult. Fortunately, your tax refund could be an opportunity to get a Discover it® Secured Credit Card that can help you build or rebuild your credit.
A secured credit card is designed for people who are looking to build or rebuild their credit with responsible use. It looks and acts like a standard credit card, with one exception: You must provide a security deposit as collateral for your credit card account. This is where your tax refund can become very useful.
By using your tax refund to fund your security deposit, and then using your secured card for everyday purchases, such as gas and groceries, you can start building or rebuilding your credit history, provided you use your card responsibly. On top of that, you can earn cash back on all your purchases, and Discover will automatically match all the cash back you’ve earned at the end of your first year.1
Your credit line will equal the amount of this security deposit. If you don’t have extra money for this deposit, using your tax refund could be an option to fund the account.
Like any other credit card, as you use your new secured card, you will need to make payments each month. By using your secured credit card responsibly for everyday expenses, you can enjoy rewards and build your credit history with the 3 major credit reporting bureaus. Prepaid and debit cards generally can’t do that.
5. Improving your marketability
One way to make your tax refund work for you is by putting it toward furthering your education or credentials for work. Certifications issued by a nongovernmental agency can increase your paycheck, on average, by as much as $324 weekly, according to BLS data. Licenses that are awarded by a government agency can increase a paycheck by an average $261 weekly.
Again, you may be able to use a secured credit card to pay for these professional development certifications or licenses. Now you could improve your credit score and financial future. Talk about putting that tax refund to work.
6. Amplifying your purchasing power
Your tax refund may not feel like it can stretch very far with the cost of items today. A couple of hundred dollars can be quickly eaten up by one weekend away or a few pairs of new shoes. Wouldn’t it be nice if you could make that money stretch even further? Good news: You can by spending responsibly.2
While saving can be essential to increasing your wealth, finding smarter ways to spend your money could be equally impactful. For instance, a Discover it® Secured Credit Card comes with up to 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter and 1% on all other credit card purchases. This way, you can earn cash rewards as you shop! As mentioned previously, unlike many other cards, a secured credit card can help build or rebuild your credit history with responsible use and provide some benefits for your future self.
7. Recharging your batteries
Saving and investing your tax refund are both great ways to get the most out of it. However, many studies have shown people who spend their money on experiences rather than physical goods tend to receive more satisfaction from their purchases over a long period. In fact, research also suggests taking a vacation can have positive effects on your health, including stress reduction, heart disease prevention, improved productivity, and better sleep. So why not take a portion of that refund and use it to finance a getaway to your favorite destination? A little time in the sun or on the slopes can go a long way toward building a better year.
Tax refund checks will be on their way to taxpayers’ mailboxes and bank accounts before we know it. Make the most of your tax refund by having a plan to maximize its value, whether that is by building your credit score, making your dollars work for you, or by stretching them as far as they can go. By now, you likely have more than a few ideas on how to spend your tax refund wisely.
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