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9 better ways to use your tax refund instead of spending it

Hopefully, you've completed and sent off your tax return by now. While some of us may owe Uncle Sam money, others are getting a nice hefty refund check.

According to the IRS, the average tax refund is $2,893. This is quite a large chunk of money. Add to that all the stimulus checks you've received lately and there could be quite a bit of cash lying around at your disposal. So what's the best way to handle this lump sum of cash? While you might be tempted to go off on a shopping spree, hold on to your check just a bit longer.

It's important to think through what you're going to do with your refund. It's your money and you want to make sure you're spending and saving it wisely. Here are nine smarter uses for your tax refund versus simply spending it.

1. Pay Off Debt

Debt is never a pleasant thing to live with, which is why you may want to put your tax refund toward paying down debt balances. Making a large payment at once can not only significantly reduce the amount you owe but also be a huge motivating factor for continuing to pay off your debt more quickly.

Focus on paying off the highest interest debt first, or the one with the lowest balance, depending on whichever method you prefer. Credit card debt is the kind of debt you don't want to keep around, so pay those down immediately. Then continue attacking your other debts with extra money each month until you become debt-free.

2. Add to Your Emergency Fund

If you don't have an emergency fund, you should start one now using these funds. You never know what can happen, and your emergency fund can help you prepare for the what-ifs as well as keep you on a better financial path.

With all the expenses you have, it can be hard to contribute to your emergency fund on a regular basis. Consider putting a significant portion of your tax refund away for this purpose.

3. Invest for Retirement

If you don't have any debt and are in good shape with your emergency fund, consider investing more towards retirement. Even though you may be decades away, it's never too early to start preparing for retirement. The earlier you start saving, the more money you'll see in retirement.

A smart place to invest the money is by putting it in a Roth IRA. If you don't have one, then it's really time to open a new account. The tax benefits you'll gain will keep on giving year after year because nothing in the account will be taxed if you take the money out in retirement. That means no capital gains taxes, and no taxes on dividends, interests, and any other income.

4. Start a Travel Fund

Traveling the world may have seemed impossible over the past year or so, but you can start making that dream a reality now with this extra refund money. Traveling can certainly be costly, but starting a travel fund and contributing to it on a regular basis will help you reach your goal.

Open a separate savings account and put a portion of your tax refund towards travel expenses. Even if it's only a small amount, you can start chipping away at that dream vacation of yours.

5. Put it Toward a Child's Education

If you have children or plan to have children, a financial concern is likely how you're going to pay for their college education. It's expensive, especially if your child ends up going to a private school.

If you can, start putting money aside for their education now. Talk to your financial advisor or CPA as to what route is the best for saving, but a good place to start is with a 529 plan. The years will pass by faster than you expect and pretty soon, you'll see that first bill for tuition.

6. Spend it On Your Health

You should also set aside some of the tax refunds for yourself. You work hard and, after all, it's your money so enjoy it a little bit. Try to spend it on something that's fun but also beneficial, like a dance class or a new bike.

You could also invest in a housekeeper or babysitter so you can regain some mental health and relaxation time. Either way, you'll have a great time, all while investing in your health.

7. Upgrade Your Home

Home maintenance and repairs can sometimes fall to the bottom of our list, especially with all the other expenses we have in our lives. But if you have money to spare, it's a good idea to put it towards upgrading your home. First, it helps with your property value, if you own and want to sell in the future. Second, it can also help you save money in the long run. For instance, replacing your old appliances with energy-efficient ones can significantly cut down your utility bills.

8. Donate to Charity

You absolutely aren't obligated to donate to charity, but it's always nice to think of others. Giving to charity may be tough with your regular paycheck. So if you have anything leftover with your tax refund, consider donating some of it to a cause of your choice. It will be put into good use and deeply appreciated, on top of being a tax deduction for next year.

9. Invest in Yourself

Lastly, it's always a good idea to invest in yourself regardless of your financial situation. Think about it this way: how can you use this money towards bettering yourself? Perhaps there's a class you've always wanted to take to improve your skills. Or there's somewhere you've always wanted to go. Life is about experiences so don't be afraid to spend on them.

We have ideas to help you get started! Visit FirstMidwest.com/Locations to find a banker near you.  

This article was written by Connie Mei from MoneyNing and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

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