For most taxpayers, the light at the end of the tax season tunnel is the hope of a refund. Many of us view a tax refund as ‘bonus’ cash; however, it really should be utilized just as any of your other income would be and managed purposefully. So if you’re anticipating a tax refund this year, make sure you have a plan for your money.

 

Prior to receiving any tax refund, think about your personal financial situation to determine what your needs are. The following 10 ideas can help you prioritize your financial picture and plan how to use your refund wisely.

 

1. Save for a rainy day – or a stormy one

Although it may not seem like a very exciting way to use your refund, the peace of mind that establishing or adding to your emergency fund will give you is priceless. Financial experts advise that your fund should have about six to eight months’ worth of savings in an easily accessible interest-bearing account. Your refund is the perfect vehicle for making a lump sum deposit into this type of financial cushion.

 

 

2. Reduce high – interest debt

Next to putting money away for a monetary emergency, paying off any high-interest debt you may have is the next best thing you can do to strengthen your financial position. This may include paying off credit card balances, payday loans, title loans, debt consolidation loans, high-interest private student loans, and car loans.

 

 

3. Make a list of needs…not wants

If there are some necessity items that you have desperately need such as repairs on your vehicle, dental checkups for your children, or an essential house repair, a refund can provide the ‘extra’ funds to cover the costs. Just be sure that any spending you do is on essential items.

 

 

4. Refinance your mortgage or upgrade your home

With relatively low mortgage rates now available, you may want to consider refinancing your mortgage to save money each month with a lower mortgage payment. Your refund can be helpful in providing funds from which to pay your closing costs and fees when you refinance your mortgage. If you feel that you have the best available mortgage rate, using your refund to do a few home improvements can be a smart move. For example, renovating your kitchen could help you increase your home values. Or perhaps there is a must-do project like putting a new roof on your house.

 

 

5. Make a budget and fund it.

If you don’t already have a budget, receiving your refund may be the incentive you need to create one. Once you have your budget organized, consider using your refund to seed bank accounts for key purchases such as holiday gifts, car down payments, college savings and the like.

 

 

6. Top-up tax – sheltered accounts

Using your tax refund to start or top-up a traditional or Roth IRA (Individual Retirement Account) or to contribute to a 401(k) or a 529 college savings plan offers you a double bonus. Not only will you be compounding dollars and interest for your future retirement or college tuition needs, but you may be creating a deduction for next tax season as well.

 

 

7. Invest in a taxable account

If you have already contributed the maximum to your tax-sheltered accounts, consider investing in stocks, bonds, and mutual funds either independently or through a financial advisor who can guide you.

 

 

8. Make a meaningful charitable gift

When you are on a tight budget, making donations to worthy causes may not be possible. However, if you have taken care of some of the other items above, and you have some extra money from your refund, contributing to a good cause that you feel passionate about is an excellent use of capital. Your generosity may also offer you a tax deduction.

 

 

9. Turn a vision into reality

If you have some funds leftover from your refund after taking care of savings, debts, and necessities, maybe this year’s tax refund can go towards funding a dream-like a family trip to a memorable location or even starting your own business.

 

 

10. Go ahead…Treat yourself!

If you have checked tips one through nine off of your list, you deserve a treat. Just make sure your splurge is a) planned and b) within your budget. So whether it is a fancy dinner for two or a getaway to a longed-for destination – enjoy it thanks to your tax refund. After all…you earned it!