The average tax refund in 2017 was $2,763 — that’s a significant sum of cash. It can be tempting to use that money to splurge on something you want but don’t need, but it’s smarter to use that money in a way that will benefit your life and business for the long term. Here are five great ways to spend your tax refund that you won’t feel guilty about later.
1. Pay Down Credit Card Debt
The average interest rate on new credit cards in 2017 was 16.15 percent. Paying off existing credit card debt is probably the smartest use of your tax refund. Getting out of debt can help increase your credit score and free up more of your money each month so you can use it to invest in your business.
2. Pay Down Student Loan Debt
While student loan debt is often considered “good debt” because of its low-interest rates, the reality is you don’t want to have any debt hanging over your head if you can help it. Using your refund to decrease your student loan debt is a great way to end those payments sooner and give yourself a morale boost even if the amount you pay doesn’t make a huge dent in your overall debt.
3. Start (or Increase) an Emergency Fund
Ideally, you should have three to six months’ worth of expenses saved in an xemergency fund outside of any savings you may have for retirement. If you don’t have an emergency fund, using your tax refund to start one is a great way to give yourself some peace of mind in case the unthinkable happens.
Even if you can’t save three to six months’ worth of expenses, any emergency fund is better than no emergency fund. You will at least have some money saved for unexpected expenses like your car breaking down or some other unforeseen emergency happens.
4. Fund Your Retirement Account
Americans are drastically underfunding their retirement accounts. The average American couple has only saved $5,000 toward retirement, and only a third of Americans are saving money in an employer-sponsored or tax-deferred account. As an entrepreneur, using your tax refund to beef up your retirement accounts can help you buck these trends and move you toward a more secure future.
5. Invest in Yourself
Do you need any certifications to make your business more competitive? Are you a few classes short of your degree? Maybe there is some new equipment you want for your business. Whatever the need, using your tax refund to invest in yourself is an excellent use of the funds and can allow you to improve your business and make more money in the future.