Getting a tax refund? Congrats on surviving your battle with a tax code more than twice as big as Stephen King’s “It.” If you’re like most of us, you were probs sweating it a little.
Now the fun part—deciding how to spend that bling. But before you start checking off your Amazon wish list, ask yourself this: What’s the most important thing you can do to move forward in life this year? Do that with your refund instead.
Want to know how financially savvy people spend their tax refunds? Here are five smart ways to use that check from the IRS:
1. Hit the reset button.
If you’re behind on bills, catching up on missed payments is the best thing you can do right now. Your tax refund can give you a financial do-over, so you can start fresh this spring without any ominous letters or phone calls. Think of all the money you’ll save on interest and late fees.
2. Start a stash.
Most Americans are more prepared for the zombie apocalypse than they are for a $500 emergency. Nearly one in three young adults have zero emergency savings, and for good reason. It’s a struggle to save when you’re barely making it. But your tax refund? Boom—instant safety net. Even having just $1,000 in savings can get you through everything from a tight month to a sudden crisis. It also puts you in the top 50 percent of millennial savers.
3. Deepen your pockets.
If you want to live large, you gotta do what rich people do: invest. Did you know the government will actually pay you up to $1,000 to invest your tax return? If you make less than $45,000, you can deduct up to 50 percent of the first $2,000 you save in a retirement account, like an IRA or your employer’s 401(k). That could mean an even bigger refund next year—plus your money will keep on growing.
4. Climb out of the hole.
Got debt? Your tax refund can make a decent dent in it. Pay off a small debt completely, and that’s one less monthly payment to worry about this year. Or focus on your account with the highest interest rate—usually a credit card or student loan—and save yourself some interest.
5. Work for yourself.
For six in 10 millennials, owning a business is a goal. You can be your own boss, set your own hours and live life your way. But most say they’re too financially strapped to get off the ground. Here’s good news: The average tax refund tops $3,000. Think that’s not enough seed money for a business? Entrepreneur magazine was able to name 23 different careers you can launch for under $2,000.
For many of us, our tax refund is the biggest chunk of money we see all year. Why not use it to set yourself up for financial success?