For folks who get a substantial tax refund, it’s exciting and many of us don’t want to spend it on “boring” things. Instead, you might want to treat yourself to a trip or buy a big-ticket item you’ve wanted for a while. While this obviously sounds appealing, it’s financially savvy to use your refund to set yourself up for financial success. Here are tips to help you get ahead financially this year.

1) Get current on past due bills

Being behind on bills can cause a lot of undue stress on people. Are you behind on any debt payments, like a mortgage, car loan, student loan or credit card? Are your utilities current on payments? If not, using your tax refund is a great way to play catch up and relieve stress, as late fees and collection calls should stop.

2) Pay down/off debt

Do you have any credit cards or loans? You could take the opportunity to pay off one of your debts using your tax refund. It can make a huge difference in your monthly budget, as paying off a debt will eliminate a monthly payment. Without that payment, think of the breathing room in your budget that you will create. 

3) Make needed repairs

Home and car maintenance can sometimes take the back burner with everything else we have to pay for. When is the last time you changed the oil, air filter, etc.? Do you need new tires? Many repair and maintenance procedures are designed to provide optimal fuel efficiency, which can greatly reduce monthly gasoline costs and the potential for larger (and more expensive) repairs down the road. Or, regarding your home, is there an appliance on its last legs? Are there other repairs you’ve been meaning to get to? Fixing small problems now, before they create larger problems, might save you thousands of dollars in the long run.

4) Save, save, save

Many Americans rely on credit if there is an emergency expense that they have to pay for. If you don’t have a current emergency, think about using your tax refund to establish emergency savings. A good goal is at least three months’ worth of expenses. While that seems daunting, your tax refund can give it a nice kick start. Then aim to set aside money monthly or from each paycheck into savings. 

If you already have emergency savings ready to go, think about using your tax refund to start saving for retirement. Saving a little now will allow for less frantic saving when you are older.

5) Treat yourself (smartly)

If you’re caught up on bills and have money in emergency and retirement savings, you have a bit more leeway. Is there a trip you have been dreaming of taking with the family? Instead of charging the trip expenses, use your tax refund to pay for them instead. If you’re not expecting enough for a trip, start saving toward that goal. Or, think about ways that you can make next year more affordable. If you buy a lot of birthday or holiday gifts, or if you have kids in sports or other activities with fees, you could start saving toward those. 

Bonus tip

If you are playing catch up on bills and receive a large refund every year, there might be a better way to distribute your tax contributions. Check out the IRS website’s withholding estimator. You’ll need to answer some questions about income and your family situation. But keep in mind, if you reduce the amount you pay in taxes, it can provide a boost in your paychecks — hopefully allowing you to stay current on all your bills. Note: be sure to do this every January so you do not create a liability problem and have to pay in.

The key takeaway I hope everyone gets from this blog is to set yourself up for success with your tax refund. But also, do remember to sprinkle in a little fun and treat yourself (if it’s feasible) with something small like dinner and a movie or a new outfit. 

Please note that our financial counselors are not certified tax professionals, and this blog should not be taken as tax advice. For tax guidance, please contact a certified tax professional.

Author Elaina Johannessen is program director for Debt Management Plan Operations with LSS Financial Counseling.

North Star Credit Union offers six free financial counseling sessions through LSS Financially annually for members.

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