3 Smart Things to Do With Your Tax Refund

A tax refund may seem like a good thing at first, but it's actually a sign that you've been giving the government an interest-free loan throughout the year. If you wanted to, you could have chosen to have that money sent to you in each paycheck instead of waiting until tax season. It's like getting a present from yourself that you could have given to yourself at any time but chose not to. So when you get a tax refund, just remember that it's your money that you could have had all along.

While it may be tempting to blow it all on a new wardrobe or a fancy dinner, there are some more sensible things you can do with that windfall. Here are three of them:

Pay Down Debt

The tax man cometh, and with him a fat tax refund check. It's like getting a bonus at the end of the year; only it's from the government instead of your employer. And what do most people do with their bonuses? They spend it, of course. But maybe this year, instead of treating yourself to a shopping spree or fancy dinner, you should use your tax refund to pay down debt.

Here's why: when you have debt, you're effectively giving interest payments to someone else. Wouldn't it be better to keep that money for yourself? Paying down debt is like earning a guaranteed return on investment. The interest rate on your credit card might be 10%, but if you're in a high tax bracket, your effective interest rate could be closer to 20%. So by using your tax refund to pay down debt, you're essentially earning a 20% return on investment - not bad!

Plus, paying down debt will help improve your credit score. A higher credit score means lower interest rates on loans, which can save you thousands of dollars throughout your life. So this year, instead of blowing your tax refund on a new TV or designer handbag, consider using it to

Build up your emergency fund

What better way to use that money than to build your emergency fund? That way, if something unexpected comes up, you'll be prepared.

Of course, you could also use your tax refund for other things. You could go on a vacation or splurge on a new piece of furniture. But let's be honest: those things are nice, but they're not going to help you if your car breaks down or you lose your job. An emergency fund is a much smarter choice.

So why not use your tax refund to give yourself some peace of mind? It's one of the smartest things you can do with that money.

Invest it

Investing your tax refund is a great way to grow your money without putting any additional money out of your pocket. And there are plenty of options when it comes to investing, so you can find one that fits your personal goals and risk tolerance.

If you're looking for a safe investment, you could use your tax refund to purchase some bonds. If you're willing to take on a bit more risk, you could invest in stocks or even put your money into a high-yield savings account.

No matter what you choose, investing your tax refund is a smart move that can help you reach your financial goals.