As tax day approaches, more and more of us are finishing paying our taxes and receiving our tax refund checks. Whether it’s a few hundred or a few thousand dollars, these refunds can be a significant once-a-year bonus for many people, and it’s worth asking yourself how you can budget your refund responsibly so that it helps you build the life you want to live rather than getting blown on something we won’t remember a month from now. Here are just a few of the most responsible decisions you can make with your 2022 tax refund:

  1. Stash your tax refund into your emergency fund

Living paycheck-to-paycheck is one of the most stressful (and most common) struggles in our society. Countless people have so little money saved that they wouldn’t be able to pay next months’ rent if they lost their job today, or wouldn’t be able to afford a sudden car repair or medical bill–which can not only put their lives in danger, but also their employment itself.

So if you don’t have a robust savings yet, one of the greatest things you can do with your tax refund is to stick it into an account and let it sit there until you need it for an emergency. Not only will this give you a little breathing room and reduce your ambient stress levels, but once you have an emergency savings, it becomes that much easier to contribute to it a little bit each paycheck so it grows and replenishes.

  1. Put your refund into a retirement account and watch it grow

Thinking about the future may not come naturally if you’re focused on paying rent or the next water bill on time, but your tax refund can give you some money to play with that can really help make sure you’re setting yourself up for long-term financial security. By sticking some–or all!–of your tax refund into a retirement account, you’re honoring yourself by giving yourself a cushion so that you don’t need to work your entire life.

And while it’s obviously difficult to prioritize your retirement when you’re young, that’s all the more reason to start now. Not only do many workplaces offer matching contribution benefits (which is just free money!), but retirement savings work by compounding interest over time. This means that as your savings account earns interest, that interest itself starts earning interest–by starting now, you’ll be earning exponentially more for retirement than if you started a decade down the road.

  1. Use your tax refund to pay down debts

We all know how hard it can be to save money when you’ve got a bank breathing down your back every month. This is why paying down debts is one of the best uses of your tax refund. Just like a retirement savings account grows huge by compounding interest, so too can credit card or student loan debt, and the faster you can pay off the interest and start digging into the principal, the less momentum that debt will have to build and build until it’s out of control. 

Whether you choose to use the Snowball Method of paying off the smallest debts first or the Debt Avalanche method of tackling your debts with the highest interest rate, going after your debts with a strategy is crucial–and the sudden cash infusion that comes with your tax refund can turbocharge your debt payoff strategy, whatever it may be.

  1. Need a treat? Don’t blow your whole check!

Of course, it’s not uncommon to want to use your tax refund to treat yourself–it’s a cash windfall that we all get excited to see, and for many of us who aren’t the highest earners, it’s often one of our few opportunities to really get something we want rather than just spending money on what we need.

So if that’s what you want to do, we don’t blame you. But we would encourage you to think about it smartly. Do you really need to spend the whole refund check on a new gadget or vacation in order to feel special? Maybe you can use part of it to snag something off your Amazon wishlist or a nice meal out with your partner, then use what’s left for more “responsible” financial opportunities like above. 

Or maybe, rather than treating yourself to something disposable, you treat yourself to an investment in you: use your tax refund to invest in your education, to help get that side hustle off the ground, or to buy yourself a tool that you’ve needed to take your skills to the next level.  

Spotloan: A Smarter Way to Borrow

Tax refund season can be a huge boost to our finances, especially if the year before has given us reason to tighten our purse strings. But it’s just as easy to deposit that big check and blow it before you even realize it’s there, which is why we’re all about financial education. 

At Spotloan, our mission is not only to provide loan options for people in any financial situation, but also to provide the education and resources to help you navigate the difficult world of personal finance. Contact us today to fill out a loan application or take advantage of our financial education resources and get your money in order.

A note from Spotloan: We hope this article has provided some helpful tips as you prepare to file your taxes. However, as with any important tax-related decision, we suggest that you reach out to a qualified tax professional with any questions you may have.