Here's How You Should Spend Your Tax Refund

by Natalia Lusinski
Eugenio Marongiu/Fotolia

Money is a feminist issue — and yet, women are still reluctant to talk about it. According to a recent Bustle survey of more than 1,000 Millennial women, more than 50 percent of people said they never discuss personal finances with friends, even though 28 percent reported feeling stressed out about money every single day. Bustle's Get Money series gets real about what Millennial women are doing with their money, and why — because managing your finances should feel empowering, not intimidating.

With tax day just around the corner on April 18, chances are you're thinking about what you’ll do with your tax return — assuming you'll be getting one. If you’re curious how you should spend your tax refund, I asked some experts for their thoughts. After all, it's WAY too easy to go make an impulse purchase and end up having none of your tax return left. "While we all love treating ourselves to a splurge purchase, it's important to balance this by saving or investing some of your tax refund, too," Fidelity Investments Vice President Onisa Treibs tells Bustle. "Decide up front what your spend/save split will be — whether it's 50/50 or 40/60 — and commit to it so you can have your treat and still stay on track with your financial goals."

Sounds like solid advice, yes? That is, as long as you commit to the percentage you agree to spend versus save. But I know — you have this seemingly large check sitting in front of you: What's the harm in spending it, right?! Can't you just save or invest more of your paychecks from now on instead? However, before you rush off to the bank to cash that check, read what the experts below have to say about what to do with your tax return. Your bank/investment account(s) will thank you later, trust me.


Pay Off Debts

"If you're looking to pay off any debt, consider putting cash toward high-interest non-tax-deductible debt, like an expensive credit card bill or student loan payment," Anna Colton, Merrill Edge executive, tells Bustle. I bet you can relate to this, right?! Plus, by following this advice, it'll be such a freeing feeling to knock down that credit card or student loan debt!

In fact, Kiip, the moments-based advertising company, surveyed more than 40,000 mobile users to gather data around tax day. They found that when it comes to spending tax returns, paying off debts is people's No. 1 priority.


Start Or Build Up Your Emergency Fund

Do you have an emergency fund? And, if so, how much do you have in it?! If you think about it, a tax refund seems like a perfect way to start or add to an emergency fund. "Building up an emergency fund is another important, strategic use of extra cash, such as a tax refund," Colton says. "Your emergency fund should be large enough to cover at least six months' worth of living expenses to help you afford daily expenses if you suddenly become unemployed, get a surprise bill, or have to deal with another unanticipated expense."

Treibs agrees about having an emergency fund. "Emergencies and unexpected expenses happen without warning,” she says. Fidelity recommends setting aside between three to six months' worth of essential living expenses in an emergency fund to make sure you’re prepared. Luckily, the IRS makes it easy for taxpayers to save their refunds with free direct deposit in up to three accounts."


Split The Difference & Split Up The Tax Return

"If you're looking to pay off high-interest, non-tax-deductible debt and create an emergency fund, think about putting half of your tax return or bonus toward your debt and the other half toward your emergency fund," Colton says. "This way, you'll likely be more equipped to fund any times of financial trouble and on your way to potentially paying off your debt." This one sounds like an ideal idea, too!



You may often hear that you should be investing, and it's true. "Opening a Roth or Traditional IRA and investing your tax refund is a great way to grow your money for retirement," Treibs says. "You can even use the free direct deposit option noted above to have some, or all, of your refund money sent directly to your IRA." I don't know about you, but I'm always so impressed about technology these days, from being able to file taxes on your phone via TurboTax to getting your tax refund via direct deposit!


Put It Toward Short-Term Goals

"Another way to put your tax refund to work is to put it toward short-term goals, like a vacation, renovating or redecorating part of your home, or a new car," Colton says. Similarly, according to Kiip's survey, putting tax returns toward a well-earned vacation came in as the second most popular way to spend a return among the 40,000 mobile users they surveyed.


Put It Toward Long-Term Goals

You can also use your tax refund for long-term goals, says Colton, "such as saving for a down payment for a home or contributing to your retirement fund."


Create A "Fun Fund"

"It's good practice to put aside a portion of any extra money you hadn't planned for (i.e., your income tax return)," Dan Cunningham, Financial Advisor with One Day In July in Burlington, VT, tells Bustle. "This money will not only help with savings, but a portion could be set aside for your 'fun fund' as well. We all need one, even the most financially responsible of us." I couldn't agree more! How about you?


Open A Secured Card

Did you have problems with credit card spending and now have bad credit? Well, if you need to build or rebuild credit, you can use some of your tax refund to open a secured card. For instance, with a Discover it Secured card, with $200 from your refund, you'd get a $200 credit line, which is used as a security deposit that you’ll get back once you qualify for an unsecured line of credit. Cardholders can not only establish credit and transition to an unsecured line of credit in just seven months, but they also get benefits such as 1% cash back on every purchase and 2% cash back at restaurants or gas stations. Bank of America has a similar option, the BankAmericard Secured Credit Card, which has a $300 minimum to open the account. Both cards help you to establish credit, and credit bureaus will take note, too.

Of course, I know that what one decides to do with their tax return will vary from person-to-person. However, there's no doubt that the above options definitely give you something to think about, right?!

Check out the “Get Money” stream in the Bustle App for more tips and tricks on how to save and spend your money.