Are you getting a tax refund this year, or perhaps you got yours already. If you’re planning to get a 2019 tax refund this year, you may be wondering how to spend it. In this post, I’ll go over great ways to use your 2019 tax refund.
You can spend your 2019 tax refund in several ways, but you may want to consider using it to better your financial well-being. Check out my top suggestions.
1. Buff Up Your Emergency Fund
If your emergency fund is less than $1000 or you don’t have an emergency fund, I recommend that your tax refund first go there. An emergency fund is best placed in a high yield online savings account. My online bank of choice is CIT Bank, and I have used them for years.
If your emergency fund is greater than $1000, and your debt is relatively small compared to your gross annual household income (50% or less), then I would start paying down debt next. Otherwise, if your plans to pay down debt may take years, I would beef up your emergency fund to a minimum of three months of living expenses.
If you’re not in debt, not counting your mortgage, and you have a single income steady household income, then saving up six months of living expenses in your emergency fund makes more sense.
2. Pay Down Debt
If your emergency fund is sufficient and you have a lot of debt, especially high interest debt like credit card debt, apply your tax refund to your debt.
The debt snowball method of paying down debt dictates that you pay the minimum payment on each debt and then apply the rest of your money to the lowest balance debt.
While the debt snowball method may not save you the most money, it frees up money the quickest and has the psychological effect of giving you steady wins as you progress on your journey to becoming debt-free.
If you’ve paid down all of your high interest debt, consider paying down your house, investing for your retirement, or splitting the money 50/50.
Additionally, if you’re saving up for a dream purchase, like a new home, placing your tax refund into your down payment fund makes perfect sense.
Related Post: Pay Off The Mortgage Or Invest First? Here’s The Math
3. Invest for Retirement
It’s never too late (or early) to invest for your retirement. Depending on your age, you’ll need to save at least 15% of your take-home pay to have a recommended amount for retirement, and that’s a conservative guess.
Ideally, banking as much as possible towards retirement is key because the more money you have put aside, the sooner you can retire, and the more you can enjoy your life while maintaining financial independence.
Depositing your 2019 tax refund into a tax-advantaged retirement account, such as a Roth IRA, is a great way to give your nest-egg a boost.
One way to determine how much money you’ll need to retire is figuring out what 80% of your projected salary at retirement will be. If you believe you’ll make $100k at retirement, then a safe estimate is that you will need $80k per year to retire. A retirement calculator can help.
Related Post: Index Funds: A Better Solution Than Mutual Funds
4. Save For Your Kid’s College
Have kids? Start saving for your children’s college fund(s). You can open a 529 plan for each child and contribute after-tax dollars to it. Like a Roth IRA, a 529 plan offers tax-free growth and tax-free withdrawals when the funds are used for qualified education expenses.
Helping your kids college is a great way to save them from being forced to decide whether to take on heavy amounts of student loan debt. Whether you simply put them through college or have them earn it, spending your 2019 tax refund on your kid’s college education puts them at a financial advantage when they graduate.
5. Pay Bills in Advance
An interesting way to effectively lower your annual expenses and save on your budget is to pay your bills in advance using your 2019 tax refund. If you know what your bills will be for the next several months, such as any reoccurring expenses, use your 2019 tax refund to pay them ahead of time or put the money into an account where you can pay the bills as they come in.
By paying your bills ahead of time, you’ll have more money at the end of the month to allocate elsewhere. I recommend picking one or more bills so you can spread your 2019 tax refund out across as many months as possible, versus paying every bill of a single month. That way, you can save over the long haul and pace yourself.
6. Donate Your Tax Refund
A lot of people are hurting right now. If you don’t need the money for yourself, consider donating some or all of your 2019 tax refund to a charitable cause.
For amounts up to $250, keep a receipt, canceled check or statement. If you donate over $250, you’ll need a written acknowledgment from the charity that you can submit with your next year’s tax return.
7. Treat Yourself
Last but not least, if there’s nothing else to spend your 2019 tax refund on, spend some of it on yourself, your significant other, and your family. Most of all are still indoors from the pandemic, and for those states that are opening up, it may be wise to limit how much time you spend in public.
Here are some ideas to spend your 2019 tax refund on:
- Upgrade your computer and/or grab some games
- Put towards a vacation
- New clothes for your whole family
- A fun day out for upcoming birthdays
- Holiday presents
There’s definitely nothing wrong with treating you and your loved ones if you don’t need to spend your 2019 tax refund on anything else.
Wrapping It Up
My wife and I got hit hard by COVID-19, and we spent our 2019 tax refund on bills and locked the rest away into our emergency fund. Whichever avenue you choose to use your refund, I’d love to hear it. Drop a comment or share your money wins with me on Twitter.
What did you do with your tax refund this year?