If you’re like most taxpayers, you’re looking forward to your tax refund this year, and it’s probably going to be a substantial amount. As of mid-March, more than 60 million refunds had been issued, averaging $2,938 per person. For many, that “extra” money can feel like a windfall, creating some much-needed breathing room in a budget. While it’s all too tempting to spend a refund quickly and irresponsibly, using it wisely can help you work toward money goals and set yourself up for financial success for months to come.
Examining the money habits of personal finance experts can give insights into what responsible money management looks like in the real world. We asked a group of personal finance experts, “What is the best thing you ever bought with your tax refund?” Their answers revealed that being responsible with your tax refund doesn’t have to mean saving it — sometimes spending or investing it will get you much better returns than socking it away.
From investing in a side business to paying cash for a used car or paying down debt, here’s what personal finance experts are doing with their tax refunds.
INVESTED IN MY BUSINESS
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Emma Johnson is the founder of Wealthy Single Mommy, where she writes about money management as a single mother and professional.
Johnson tries to make sure she gets a small tax refund, “because I’m careful not to give the Fed an interest-free loan — and you should be, too!” She still got a modest refund this past year and used it to fund an upgrade for her business. “I put the $1,200 toward my website redesign, which is an investment in my business,” Johnson said.
Investing her refund into growing her business will give Johnson an important boost to her earnings potential — meaning a great return on investment.
BOUGHT A JEEP WRANGLER WITH CASH
A refund can be a great opportunity to dodge debt while purchasing a much-needed essential. For Grayson Bell of Debt RoundUp, the best thing he ever bought with his tax refund was a Jeep Wrangler, paid for in cash.
“I’ve always been a fan of Jeeps and when I sold my business, I wanted to get a Jeep,” Bell said. “Unfortunately, I didn’t have enough money at the time. I waited until tax refund season as I was expecting a good amount back. After the refund came, I went to a used dealer lot, which had a yellow Jeep Wrangler I had been eyeing. I was able to talk them down a few thousand dollars and it was mine. It was the first vehicle I paid cash for and that felt good. I sold it a year later for a nice profit and bought another one after a unique opportunity arose!”
MAXED OUT MY ROTH IRA
A tax refund can also be a great time to catch up or even get ahead on saving for retirement, said J. Money of Budgets Are Sexy.
“The best thing I ever bought with my tax refund is a maxed-out Roth IRA account,” he said. “That bad boy is going to bring me financial freedom one day — what’s better than that?”
TREATED IT LIKE A PAYCHECK
While many view a tax refund as an extraordinary windfall, Stefanie of The Broke and Beautiful Life said it helps her “to treat my tax refund like any other paycheck. That means dividing it up and contributing some to short-term savings, some to retirement, some to expenses and some to play.”
Additionally, Stefanie said viewing it like a bonus helps her get her closer to her goals. “My tax refund is like a little bonus credit, almost like leap year,” she said. “I say it buys me time because I have to spend time making money. I know I worked for it, of course, but when it all banks up like that and I get the surplus back in one chunk, it’s like a little bonus day.”
FUNDED THE TRIP OF A LIFETIME
Money can’t buy happiness, but using money to purchase experiences related to your passions can definitely lift a consumer’s mood, providing lasting, priceless memories. That was the approach Pauline from Reach Financial Independence took when she received a sizable refund right before a big trip and used it to make the experience even more memorable.
“The year I graduated college, I had saved up all year to fund a 12-month round-the-world trip right after graduation,” Pauline said. “The tax refund came at a perfect time, a week or so before I left home to see the world. I used it for extra splurges such as diving or visiting expensive but amazing sites!”
PAID OFF A STUDENT LOAN
One of the best ways to get a guaranteed return on investment with a tax refund is to put it toward debt and save yourself some interest down the road, like Andrew Josuweit, CEO of Student Loan Hero, did.
“In 2014, I received a tax refund of $2,356,” Josuweit said. True to the name of his company, he put that money where he knew it would matter: “Along with my typical monthly payment and some additional savings, I was able to pay off one of my smaller student loans!”
FUNDED CHRISTMAS FESTIVITIES
Brian Fourman of personal finance blog Luke1428 sets aside some of his tax refund each year to help cover Christmas gifts. But last year, this fund led to a surprise trip with his family.
“Last September, my wife and I gave our kids a choice: Either have Christmas as usual with each of them receiving gifts or go on a trip,” Fourman said. “To our surprise, they chose to skip the individual presents and go on the trip.”
Fourman and his family headed to South Florida on a trip that included stops in the Everglades, Key West and Miami. He said the trip led to one of his favorite memories — holding a giant python at a Miami zoo — and has had a lasting effect on his family.
“My kids are still talking about our experiences,” Fourman said. “Using our tax refund to fund that trip and build those memories was the best thing we could have done.”
PAID DOWN $80,000 IN DEBT IN THREE YEARS
“The best thing my wife and I have ever bought with our tax refunds was actually a reduction in our debt,” said Lance of Money Manifesto. “We used our tax refunds at the time to get us closer to paying off over $80,000 of my wife’s student loan debt, which we completed paying off in just under three years from her graduation.” Paying their debt off in just three years probably saved Lance and his wife thousands of dollars in interest, a great return on investment for their tax refund.
ENJOYED A CONCERT
AJ Smith of SmartAsset said the best thing she ever bought with her tax refund was a pair of concert tickets.
“My husband, my best friend and I took a road trip to see our favorite musicians in concert,” Smith said. “It was an unforgettable weekend (I’m sure Jay Z and Kanye would agree!).”
Elyssa Kirkham writes for GOBankingRates.com a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.