It’s that time of the year again. Spring is here, you’re busting out the shorts/sandals combo, you’re going out more often, and you finally filed your taxes. Let’s assume for the sake of this article that you’re going to get some money back this year. Let’s look at your options.
What are the best ways to use your tax return? What are five killer ways to use your tax return for a something totally cool?
Take a trip.
I’m not shy about promoting travelling the world or taking some time to go on a trip. If you happen to get some money back you can plan a little trip. This should depend on the size of your return and your other finances. There’s nothing like experiencing something new or just getting away to recharge your batters after a tough work schedule. What’s a better time to go on a trip then around this time of the year? Just remember to have a drink for me.
Create an emergency fund.
If you’ve never really had the chance to build your savings, you can use your tax return to create a little cushion in your bank account (or an emergency fund). It’s important that you start saving for a rainy day in your 20s because you really don’t know what life can throw at you sometimes. I can’t help you emotionally, but I know that financially it always helps to have some money saved up just in case.
Start your own business.
These days you can easily start a business with less than $1,000. I’ve shared in great detail how you can start an online business. The best part is that all you need is a little bit of money, some spare time, and a passion. I’m pretty sure that you can at least get 2/3. This tax refund can be the boost that you need to start working on that project that you’ve had on your mind for a long time.
Pay off debt.
Chances are that you have looming student loans or some debt from your first student credit card. You can suck it up and use your tax return to deal with this debt. It’s not a fun way to spend this cash, but it beats having so much debt to think about constantly. If you kill some debt off right now, you can use your savings from the summer for some of the options on this list.
Save for your retirement.
If none of the other options are attractive to you (you must be boring), you can use your tax return to finally start saving for retirement. I know that thinking about being old is the last thing on your mind at 24, but we all grow old eventually (we don’t all have to grow up).
You don’t have to put all of this money into your retirement. You can keep it simple and put only $50 or so in so that you at least start a retirement account.
You can also choose to close this window and spend your tax refund on a new outfit. It’s your life. It’s your money. I’m just here to promote a few killer ways you can spend your tax return this year.
In casey you missed the tax dealing, you need to check out our previous piece on what to do after the day to file taxes has passed.
Hey MD!
Nice post, but don’t you think paying down debt should be first? That’s basically what a tax return is, after all, the IRS (or it’s Canadian equivalent) paying you back what you overpaid throughout the year, it seems like having someone back back their debt to you is ideally categorized to pay down some of your debt. Following that, an emergency fund and Roth IRA would likely be priorities two and three, at least for me!
You’re right David. Logically the best thing to do with money is to always pay down debt. The problem though is that many young people don’t always want to do the logical thing. This is why so many of us get into debt in the first place. While I do like to promote the logical thing, I’ve learned over the years that my readers don’t want the “mathematically correct” solutions. I hope this makes sense. You get any money back?
MD, I’ve also got an advice question for you and any other readers.
I’ve been offered a near full ride transfer scholarship for an “OK” business school here in Texas (ranked ~40 nationally). Should I take it and graduate with less than $2k in debt, or go to a better school (#1 in the US for accounting) but potentially be in debt of about $20k?
I keep weighing the options, and would have better networking and career opportunities out of school at the more expensive option, but I really don’t like the sound of $20k in student loans (although I know it could be much worse).
What does everyone think?
That’s an interesting situation you’re in. I’ll admit that I think we have similar views on debt (hate it! lol). The truth is that I’ve always been told by industry experts, and practically everyone that would know, that the best option is to only go to grad school if you plan on going to one of the best schools. Sure, the debt is going to suck. You have to think of the career options and income potential of writing down that you attended the #1 accounting school in the country.
I’d have to agree with David that people should be focusing on paying off debts first. Once your debt is all clear you’ll be in a much better financial position to take those vacations and save for retirement. Of course, when you’re young you may feel the need to have some fun instead. Just keep an eye on your finances and don’t let that fun hurt your bottom line too much.