Tax

Finding out at tax time that you don’t owe any taxes is awesome. Discovering that you’re getting a tax refund is even better–especially if you’ve been living on a budget. But how can you make this windfall have a lasting impact? Let’s look at four ways to spend your tax refund responsibly.

1. Stick it in a savings account

If you’re trying to build up your savings, think about using your tax refund to build yourself a cushion. You can move the money right to your savings account for an instant bump. Savings are essential for emergency situations, and just knowing the money is there in case you need it can help you feel more secure.

2. Put it toward a vacation

If you’ve been working hard and saving money, it's important to treat yourself every once in a while. You can use your tax refund to plan a fun vacation, whether it's a long trip abroad, a relaxing local getaway, or a staycation where you pamper yourself. You may decide to make the tax refund your entire vacation budget and go from there or put a portion into savings and plan a vacation with the rest.

3. Use it for a down payment

A tax refund can be an opportunity to put extra money toward a down payment on a home. A larger down payment can reduce the amount you need to borrow from a bank and save you money on mortgage interest over the life of the loan. If you’re able to put 20% down, that can mean you don’t have to pay for private mortgage insurance (PMI), saving you some money every month.

Be sure to consider all the costs involved in buying a home, including property taxes, home insurance, and maintenance costs and that you have a solid plan in place before you make an offer.

4. Pay for everyday expenses

A tax refund is just money you overpaid in taxes, so it’s perfectly reasonable to use it for everyday expenses. You might decide to use the money to pay off a credit card bill or to pay for necessary expenses in your budget. These everyday items can be your rent or mortgage, utilities, clothes, food, or life insurance premiums.

Whether you choose to stick it in savings, put it toward vacation, use it for a down payment, or pay for everyday expenses like including term life insurance premiums, by using your tax refund wisely, you can set yourself up for a great year ahead.