The 6 Smartest Things to Do With Your Tax Refund
Getting a tax refund can be exciting. It feels a little like getting a year-end work bonus in the middle of spring. Fun as it can be, it’s important to keep in mind that there are smart things you can do with that refund — and not so smart things.
Rather than blow the refund on something you don’t really need, you should put it to use in a way that can bolster your financial situation.
With the 2024 tax season underway, you might be looking forward to a refund from the IRS or your state tax agency. How you use it depends on your own personal situation, but here are six of the smartest things to do with your tax refund.
1. Pay Down Debt
If you’re carrying debt, one of the best things you can do with a tax refund is put it toward that balance. This is especially true of credit card debt, which carries high interest rates that keep carrying over to the next payment cycle when you don’t pay off the entire balance.
Credit cards can stretch out small purchases into ongoing loans by keeping borrowers on the hook for as long as possible, making minimum payment every month while they rack up interest charges.
If you don’t have any credit card debt to pay down, consider using the tax refund to get ahead on car or student loan payments. The extra cushion could come in handy in the future.
2. Open a High-Yield Savings Account
Tempting as it might be to splurge on luxuries with your tax refund, one of the smartest things you can do is put it in a high-yield savings account where it can grow. Even better? High-yield savings accounts are offering some of the best interest rates in years. One of the top options is Milli Bank, a mobile bank with a savings account that pays Annual Percentage Yield, as of Feb. 29, 2024. There are no monthly service fees or minimum balance requirements with a Milli account, and all deposits are FDIC insured.
Milli also offers a goal-oriented savings product called Jars. Milli Jars allow you to personalize your savings goals and set aside funds directly toward them, helping you visualize your progress. Opening a Milli account and growing your money faster with APY is one of the smartest things you can do with your tax refund.
3. Build Your Emergency Fund
If you don’t have an emergency fund, use your tax refund to start one. Most financial experts recommend saving at least three to six months’ worth of living expenses — and preferably longer. That sounds challenging, but putting your tax refund into an emergency fund can help you build it up in a hurry.
Opening a Milli account can also be a great way to do this. You can set up a personalized Milli Jar setting aside money directly for your emergency fund. Plus, with Milli’s APY, your emergency fund will grow effortlessly.
Having an emergency fund can bring you peace of mind knowing you have money set aside for an unexpected expense or event that’s separate from your everyday budget.
4. Add Value to Your Home
The amount of money you might get in your tax refunds can vary. It might be less than $100, or it could be $1,000 or more. No matter the size of your refund, you can still put it to use boosting the value of your home, which will pay off when you decide to sell it.
Here are some inexpensive but high-impact ways to use your tax refund for home improvements, as long as you are willing to do the work yourself. Things like repainting interior rooms, upgrading your kitchen and bath fixtures, investing in bright new efficient lighting and fixtures can go a long way on a small budget.
Bigger projects, such as retiling your bathroom floors or upping your curb appeal with new landscaping could also be worth considering.
5. Make an Extra Mortgage Payment
Another smart use of your tax refund is to make an extra payment toward your home’s mortgage. This lets you pay the loan balance down faster and save on interest payments, which can add up to thousands of dollars over time. It’s essentially the same as banking the money, but instead of earning interest from a bank, you’re being paid in the form of interest payments you’ll never have to make. Just make sure your lender doesn’t issue an early payment penalty.
6. Invest In Your Health
If you don’t have any pressing bills or debts to pay, you can put your tax refund to good use by investing in your health. This is not only an important life improvement but it can also save you money on healthcare costs further down the road. Depending on the size of your refund, you could buy anything from a gym membership to a used bicycle, treadmill, rowing machine or barbell set. The next step, of course, is to make a point of using them regularly.
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