Spring is (almost) in the air, and that means a young person’s thoughts turn to… 

filing taxes. 

An older person’s thoughts, too. 

And if you’re middle-aged? 

Same thing.

As April 15 approaches (now extended to May 15), you’ll be faced with two possibilities: 

The good news is for most Americans, you may be in for a decent chunk of change. 

The average refund in 2020 was $3,125, and three-quarters of those who filed got money back. 

Filing taxes has gotten easier, too, with 70% of taxpayers eligible to file electronically through IRS Free File.

The question is: 

If you get a refund, what are you going to do with your tax refund? 

There are probably a million ways to spend a few hundred or a couple thousand dollars. Some of them are fun and gone almost before you pay the bill; others are less fun but can set you up to obtain a way better financial position down the road. 

What have Other People Done with their Tax Refund?

The first question you might want to ask yourself is what other people did with their refunds last year. 

According to a YouGov survey of 1,372 adults, more than half (55%) either put the money into savings or used it to pay down debt. Here’s how it broke down overall:

When you think about the economic troubles most people are experiencing, it might not be so surprising to see that prudent financial choices outweigh the shorter-term methods of instant gratification.

What’s the Best Use for Your Tax Refund this Year?

It’s good to have a game plan for your tax refund. Here’s a great way to plan ahead.

Take a look at your assets and expenses, and decide what you want to accomplish. 

Then you’ll be able to make a more educated decision about what to do with any windfall you receive. 

For example, if the pandemic has caused you to lose work and you’re really struggling to just pay your bills, then make paying your bills your top priority!

The first thing you need to do is take care of the most immediate priorities. Of course we all want to save money, invest for our future, and have fun with our money.

BUT, there’s nothing wrong with using a tax refund to pay your bills and keep your head above water. Use your tax refund for whatever you need to and don’t feel bad about it.

If you have kids, you may want to put money away for their education; if you’re single or an empty-nest couple, you’ll have different priorities.

Everyone wants to spend their tax refund wisely, but with a big chunk of money, it helps to create a gameplan.

When you boil it all down, you’ve got four basic choices of what to do with your tax refund.

Save Money for Emergencies and Long Term Goals

When you’re creating a budget, don’t stop at day-to-day expenses; plot things out to include a cushion you can tap when you need it.

An emergency fund is a very practical use for a tax refund.

Whether you sock away your money in a mattress or a high interest savings account, the important thing is that you’ll have some funds to tap in case of an emergency or unexpected opportunity. 

If there’s one thing the pandemic has made clear, it’s that having backup funds can be essential. 

Experts used to say you should have three to six months’ worth of money in reserve, in case you lose your job, face a medical emergency, or hit another financial crisis.

In the face of yearlong unemployment and economic peril, many have upped that estimate to a year’s worth of expenses. 

Invest in Things that Matter

When most people hear the word “investment,” they think of stocks, bonds, or real estate. Those can all be good options, but again, it’s important to keep your situation and goals in mind when choosing how to invest your money.

Everyone is at a different place with money, so don’t compare yourself to others. Do what’s best for YOU!

Here are simple ways you can use your tax refund to invest in what matters.

Spend on a Little Fun or Pay Off Debt

If you’re comfortable with your financial situation, there’s nothing wrong with spending some money on yourself. But it doesn’t have to be money down the drain. Here are a few thoughtful ways to spend money on yourself that can be great for your mental and/or physical health.

Donate to an Important Cause

Find a worthy charity and make a donation. This is a step you can take even if you don’t have a tax refund to donate; many charities need a helping hand just as much, if not more, then they need money. 

These past years of strife, pain, and crisis have asked nonprofits in every sector to work harder than ever, which means they need more help than ever to address the world’s ills. Do your research and find a charity that fits with your heart, your mind, and your pocketbook.

Still Not Sure What to do with Your Tax Refund?

There you have it: A quick guide to just some of your options for spending that refund check. Whatever you wind up choosing, keep your situation and long-term goals in mind. It’s not often that you get a financial windfall, especially these days, so make the most of yours, if and when you get a refund.

Here’s a sneak peak into how we make plans to use our tax refund, or any windfall like a stimulus check or extra paycheck.

We plan what to do with our tax refund months in advance, and make adjustments as we need to. Here’s what made the cut this year.

It’s a really simple chart within our annual budget spreadsheet, but it helps us stay aligned with our goals.

Next up, get all of your tax documents ready and file your taxes! If you have a good chunk of money to save, or just need help tracking your savings goals, go grab my sinking fund tracker!

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Author Note: guest post written by Jessica Larson, SolopreneurJournal.com. A word from Jessica: I am a Soloprenuer with a goal of earning a decent income for family without sacrificing the scheduling flexibility that lets me actually spend time with them. Currently, I create online courses for students, which are either taught live by me or accessed later at their convenience.

What to do with Your Tax Refund: 4 Smart IdeasWhat to do with Your Tax Refund: 4 Smart IdeasWhat to do with Your Tax Refund: 4 Smart Ideas

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