New to full time employment your first tax return might seem like a huge windfall so you may be inclined to treat it like found money and blow the whole thing on a vacation or a no-holds barred shopping spree. The average tax refund in America is $3,000 – a lot to play with. But you need to remember, this isn’t found money or won money. This is money you earned through the year finally arrived in your account. You worked hard for it, now it’s time to make it work hard for you.
Pay down high interest debt
Do you still have student loans outstanding? Here’s a great way to make a significant dent there. What about credit cards with high interest rates? Instead of making small payments and continuing to carry a high interest rate month like 15%, 18% or 22% after month, vanquish the beast or at least cut it down to size in one fell swoop.
The money you save not paying that interest month after month is money you can put towards other things.
Prepare for emergencies
The other smart thing you can do with that money is either start an emergency fund or add to it. Ideally you want to have about three months worth of living expenses socked away to carry you through unexpected situations. Having an emergency fund will help save you from incurring that credit card debt or line of credit to deal with emergencies in the first place. It also preserves your retirements savings – for your retirement.
Invest in your future
Speaking of retirement, according Dave Ramesy’s 40 With No Savings? “The employee Benefits Research Institute reports that 37% of all employees age 35 – 44 and 34% of employees age 45 – 54 have less than $1,000 saved for retirement.”
The earlier you start, the more the money you invest today will be worth down the road. No matter how far away the future might seem, all of us will get there much sooner than expected. The more you can put away before you arrive, the rosier it will be when you get there.
Aside from adding to (or starting your investment income) other ways of investing in your future include investing in yourself. Are there any courses you want to take to prepare for a business venture you want to start? Are there materials you need to buy to get you started with that new Etsy business you’ve been thinking about? Think of your return as seed money to grow tomorrow’s projects.
Do something for yourself
If you are not in debt and you’re comfortable with where you are financially, then absolutely give yourself a treat! Even if you need to use the money for debt or investment you could still take a portion of the return to treat yourself. 10% maybe.
Or, instead of treating yourself maybe you’d like to use that money to donate to a cause or organization that means something to you. You help others and as a side benefit you come away feeling great about yourself. The ability to help others is one of the wonderful things money can buy. If you’re not exactly sure where to donate check out Give.org to ensure your money is going somewhere you can believe in.