So you raced to file your taxes in time for the deadline and are now eagerly awaiting your refund. If this year's numbers shake out like last year's, you might be in for quite a substantial sum. That's because the average filer who received a refund in 2017 got $2,782 back after submitting a tax return. The question is: What will you do with that lump sum of cash?
You may be tempted to blow it on something fun, like a vacation, or something somewhat practical yet nonessential, like a new mobile phone. But before you make plans for those refund dollars, here are a few options you might pursue that can change your financial picture for the better.
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1. Build or boost your emergency savings
A Bankrate survey published earlier this year revealed that 61% of Americans don't have the cash on hand to cover a $1,000 emergency. If you're one of them, then the most important thing you can do with your tax refund is stick it directly into the bank. Ideally, your emergency fund should have enough cash to cover a full three months of living expenses at a minimum, so if you're nowhere close, make this your priority.
2. Fund your nest egg
The Economic Policy Institute reports that nearly half of U.S. households have no money set aside for retirement. If you're part of this statistic, it pays to put your refund into an IRA or 401(k), if your employer provides one. This especially holds true if you're older, behind on long-term savings, and don't have much time between now and retirement.
3. Pay off debt
Whether it's a nagging credit card balance or the remains of your student loans, the longer a period you owe money for, the more you're going to lose to interest charges. So if you get a nice chunk of cash back from the IRS in the coming weeks, paying off all or some of your outstanding debt might help you not only shake it sooner, but pocket some of the additional cash you would've spent on interest.
4. Buy a home
Tired of throwing money away on rent? Your tax refund could get you one step closer to the down payment on a home you've been saving for. And once you become a homeowner, you'll get to capitalize on key tax breaks, like the mortgage interest deduction.
5. Start a business
Whether it's to replace your full-time job or serve as a side hustle, if there's a business idea you'd like to get off the ground but don't have the funding to make it happen, your tax refund might open the door to a brand-new income stream. Rather than waste that money, use it to buy supplies and equipment or to advertise the services you're trying to offer. If your venture does well, you could end up with quite the return on investment.
6. Further your career
Maybe you've been stuck in the same job for quite some time because you're missing key skills that cost money to acquire. If a tax refund lands in your lap, why not use that cash to take a course, pursue a certification, or do whatever else it takes to move your career forward? You could end up boosting your income in the years following while enjoying a series of more fulfilling positions.
7. Get a will
You don't need to be rich to need a will -- yet 58% of Americans don't have one. If you're sitting on cash from your tax refund, use it to hire a lawyer who can draft this essential document for you. Most attorneys charge a flat fee for wills unless your estate is particularly complicated, and if your refund is sizable, you may even wind up with money left over.
8. Buy life insurance
Life insurance is crucial if there's anyone in your life who depends on you financially -- but it's especially critical if you have children. Yet 75% of millennial parents are currently without life insurance, and the same holds for 41% of Americans across all ages. There are several policy options you might choose from that vary in cost, so it pays to explore your possibilities and use your tax refund to cover your initial premiums.
9. Get better health insurance
Maybe you're stressed about medical bills because your health coverage is downright lousy. If a higher monthly premium will buy you superior coverage, think about using your tax refund to upgrade your plan. You may come to find that you actually wind up saving money this way over the course of the year.
Let's be clear: Your tax refund isn't found money, but rather, it's your money that you failed to collect throughout the year. Use it wisely, and you'll be happier for it in the long run.
