From the Practical to the Fun: Ways to Invest Your Personal Tax Return

From the Practical to the Fun: Ways to Invest Your Personal Tax Return

by Jane Haskins, Esq., March 2017

It's fun to daydream about all the things you could do with your tax refund. But should you really blow it all on that fabulous pair of shoes or front-row tickets to the big game?

Personal finance experts sensibly will tell you to pay down your debts instead, but not everyone needs or wants to send their entire refund to Visa. If you're undecided, here are some ideas—from the practical to the fun—for putting that refund check to good use.

The Things Financial Experts Advise You to Do

Saving money and paying down debt don't sound like much fun, until you consider the stress you feel when you think about paying student loans, saving for a new car, or covering the mortgage or rent if you lose your job.

Here are some financially smart ways to use your refund:

Pay down debt. The average household with credit card debt owes $16,748 and pays nearly $1,300 a year in interest according to a survey by the financial website NerdWallet. That's why high interest credit card debt tops the list of bills you should pay off as quickly as possible. If credit cards aren't an issue for you, consider using your tax refund to reduce your student loans or mortgage.

Boost your retirement savings. Most Americans don't have nearly enough saved for retirement, so consider putting your tax refund into an IRA or your 401(k) plan.

Save for a rainy day. Financial experts recommend having three to six months of expenses saved to cover a job loss, disability, or other financial emergency. If you don't have enough savings, your tax refund is a golden opportunity to buy yourself some peace of mind.

Put money away for a major purchase. Dreaming of your own home, a vacation cottage, or a new car? Your tax refund can help make those dreams a reality sooner, and the more you can save for a down payment, the less you'll pay in interest over time.

Repair or replace. If your tires are bald, your home's exterior paint is peeling off, or your laptop barely operates, repairing or replacing can be a good investment that will keep you safe, preserve your home's value, or make you more productive.

Save for college. If you have kids, the earlier you start saving for college, the more time your money has to grow. If you're going to school yourself, a healthy savings account means you'll have fewer student loans and less pressure to work while you're in school.

Pleasurable Things You Might Do Instead

If you don't need to save or pay off debt—or if that's just not your style—you probably have no problem thinking of ways to spend that extra cash. Consider this, though: Researchers have found that when it comes to long-term satisfaction, it's better to spend money on experiences than on things. The thrill of a bigger TV wears off pretty quickly, while your memories of the weekend in Cancun will last a lifetime.

Here are some ideas you may not have thought of:

Cross something off your “bucket list." Everyone has things they've always wanted to do, whether it's skydiving or visiting New York City. Use your tax refund to finance one of these must-do experiences.

Take a class. Have you always wanted to try salsa dancing or learn how the stock market works? A class is a low-risk way to do something new or explore an interest. Classes can also help you meet new people or learn a professional skill.

Invest in your hobby. With the right tools, equipment, and instruction, you'll enjoy your hobby—and your life overall—even more. Consider using your tax refund to buy new or better equipment, attend a workshop or convention, or finally hit the slopes in Aspen.

Take care of yourself. Use your tax refund to boost your health and feel better about yourself. Join a gym, schedule sessions with a personal trainer, or sign up for a weight loss program. You might also invest in massages, a new hairstyle, or getting your teeth fixed. If it increases your feelings of well-being and self-esteem, you'll reap the rewards all year.