How to Save or Stretch Your Tax Refund

Tax season is just around the corner, which means that many of you will experience an influx of cash in the form of your tax refund. No matter where your financial situation sits, it’s often a mistake to use this extra money as if it were a gift rather than money you already earned with your hard work during the year.

Remembering that this extra cash is actually a part of your income can help you look at it in a more reasonable light.  This attitude will make it easier to avoid spending your refund on instantly gratifying activities and instead putting it towards investments that can help improve your overall financial wellbeing as well as increase your earning potential.

While contributing to your retirement fund isn’t the most exotic use for your money, it is something to consider if you want to save your refund and see that money grow. If you are lucky enough to have an employer matching program for your 401k, make sure you’ve maxed out your contributions and are earning as much in matching funds from your employer as possible.  If you have a family, you might also consider increasing your life insurance policy in case something happens to you. A term insurance policy can provide your family substantial protection for a relatively small investment. Also, don’t forget to invest in your career prospects. Continuing education classes can help increase your earning potential down the road.

While we’re on the subject of responsible uses for your refund, bulking up an emergency fund should be a top priority. Life is unpredictable, and living paycheck to paycheck does not provide enough of a safety net in case something goes wrong. If you don’t have enough saved away to cover at least three months of living expenses, then this is a good time to start building a reserve just in case you are hit with a surprise medical or home improvement bill. Even an extra thousand dollars squirreled away can prove beneficial if you find yourself in a tough spot.

Reducing your debt would also prove helpful if you run into cash flow problems by allowing you to devote your limited funds to essentials rather than old expenses. Additionally, simply making minimum payments can really cost you a lot of money in the long run, so it saves in the long run to pay some of what you owe down now.

Using your tax refund check to help secure your financial future does not have to mean that you don’t treat yourself a little. On the contrary, it’s perfectly healthy to splurge on a reward purchase as it can remind you why you worked hard enough to earn that money in the first place as well as motivate you to continue exerting that amount of effort. Plus, fun things like going on a vacation, trying out a new hobby, treating you and your partner to a fancy date night or updating your wardrobe can do wonders for helping you avoid burning out and dress for success. By striking a balance between work and play in your expenses you can still celebrate your deposit day on the tax refund schedule while still helping your financial future.