start or build up an emergency fund

Rainy days happen, and usually at the most unexpected times. Appliance repairs, medical bills – these are just a few reasons it’s helpful to have a stash of cash on hand. If you don’t have an emergency fund yet, start small.

Make goals of milestones to hit. For example, aim to set aside a certain amount of money first. Then, when you’ve reached that goal, think about your monthly expenses, and how much money you need to set aside to cover them. Everyone’s goals are different, but aim to save at least 3-6 months in expenses.¹ Use your refund as an instant boost to your emergency fund, and build it from there.

It’s better to keep this money separate from your regular accounts, and there are several options, so it might be helpful to talk to someone at your bank.²

pay down existing debt

An easy way to start is to use the snowball method. Start by writing down your debts from smallest to largest.³ Using your tax return, make the minimum payments required on each debt that has interest, except the smallest. Take whatever you have left and pay as much as possible on your smallest debt, and repeat (whenever you can) until each debt is paid in full. 

Your refund may not be big enough to pay down a debt in full, and that’s ok. It’s still a good step to get out of debt faster. Remember, paying anything more than the minimum payment goes directly to the balance you owe, so your payments will get smaller over time and you’ll pay less interest, too.⁴ 

spruce up your space

Everyone has a project in their home that has been on hold. Take some or all of your tax return and finish that project. These projects can be as simple as buying a can of paint and refreshing a room, replacing an old light fixture with something new and fun, or painting cabinets in your kitchen or bathroom. These easy, inexpensive updates are fun to look at and as a bonus, could add value to your home.

put it into savings

Savings accounts are different from an emergency fund, and should stay separate from your other accounts.⁵ Your tax return could be a great way to start saving for purchases that you’ve been wanting to make, such as a down payment on a house or a car. This savings could also go toward something you’ve been putting off, such as home or car repairs. 

treat yourself

Is there something you’ve been wanting to do for yourself, like take a vacation, start a new hobby or buy something fun? If you feel like you’re in a good place financially, there’s nothing wrong with splurging a bit. After all, a tax return is your money, and you should spend it how you want.