The Best Thing I Ever Did With My Tax Refund
If you're like most taxpayers, you're looking forward to getting a tax refund this year, and it's probably going to be a substantial amount. Refunds are averaging $2,938 per person. For many, that "extra" money can feel like a windfall, creating some much-needed breathing room in a budget. While it's all too tempting to spend a refund quickly and irresponsibly, using it wisely can help you work toward money goals and set yourself up for financial success for months to come.
Examining the money habits of personal finance experts can give insights into what responsible money management looks like in the real world. We asked 15 personal finance experts, "What is the best thing you ever bought with your tax refund?" Their answers revealed that being responsible with your tax refund doesn't have to mean saving it.
1. Invested in My Business
Emma Johnson is the founder of Wealthy Single Mommy, where she writes about money management as a single mother and professional. She tries to make sure she gets a small tax refund, "because I'm careful not to give the Fed an interest-free loan -- and you should be, too!" She got a modest refund this past year and used it to upgrade her business. "I put the $1,200 towards my website redesign." Investing her refund into growing her business will give Johnson an important boost to her earnings potential -- meaning a great return on investment.
2. Bought a Jeep Wrangler With Cash
A refund can also be a great opportunity to dodge debt while purchasing a much-needed essential. For Grayson Bell of Debt RoundUp, the best thing he ever bought with his tax refund was a Jeep Wrangler, paid for in cash. "I went to a used dealer lot, which had a yellow Jeep Wrangler I had been eyeing. I was able to talk them down a few thousand dollars and it was mine. It was the first vehicle I paid cash for and that felt good. I sold it a year later for a nice profit and bought another one after a unique opportunity arose!"
3. Maxed Out My Roth IRA
A tax refund can also be a great time to catch up or even get ahead on saving for retirement, said J. Money of Budgets Are Sexy. "The best thing I ever bought with my tax refund is a maxed-out Roth IRA account," he said. "That bad boy is going to bring me financial freedom one day - what's better than that?"
4. Treated It Like a Paycheck
While many view a tax refund as an extraordinary windfall, Stefanie O'Connell of The Broke and Beautiful Life said it helps her "to treat my tax refund like any other paycheck. That means dividing it up and contributing some to short-term savings, some to retirement, some to expenses and some to play."
"My tax refund is like a little bonus credit, almost like leap year," she said. "I say it buys me time because I have to spend time making money. I know I worked for it, of course, but when it all banks up like that and I get the surplus back in one chunk, it's like a little bonus day."
5. Purchased a Kindle
William from Doctor of Credit shares the view that a smaller refund is the smarter move, as it means no interest-free loan for the government and bigger paychecks all year. "By far the best purchase I've made with my tax refunds was a Kindle," he said. "I travel excessively for work and I love to read; unfortunately, carrying multiple books isn't really an option (especially when I'm trying to avoid checking luggage). Having a Kindle has been an absolute lifesaver in this regard. I can read as much as I want in my travel down time (of which there is a lot of waiting in airports and on planes) without having to worry about when my book will run out. I can also easily send myself work PDFs that I can read on flights, which leaves me more time for exploring new cities."
6. Funded the Trip of a Lifetime
Money can't buy happiness, but using money to purchase experiences related to your passions can definitely lift a consumer's mood, providing lasting, priceless memories. That was the approach Pauline from Reach Financial Independence took when she received a sizable refund right before a big trip and used it to make the experience even more memorable. "The year I graduated college, I had saved up all year to fund a 12-month round-the-world trip right after graduation," she said. "The tax refund came at a perfect time, a week or so before I left home to see the world. I used it for extra splurges such as diving or visiting expensive but amazing sites!"
7. Paid Off a Student Loan
One of the best ways to get a guaranteed return on investment with a tax refund is to put it toward debt and save yourself some interest down the road, like Andrew Josuweit, CEO of Student Loan Hero, did. "In 2014, I received a tax refund of $2,356," he said. True to the name of his company, he put that money where he knew it would matter: "Along with my typical monthly payment and some additional savings, I was able to pay off one of my smaller student loans!"
8. Made an Extra Mortgage Payment
David Bakke of Money Crashers used his tax refund to chip away at debt: "The best thing that I ever 'bought' with my tax refund is making an extra payment on my mortgage," Bakke said. "I started doing this several years ago and continue to do so to this day."
9. Bought a Mountain Bike
"The best thing I ever bought with my tax refund was a Trek mountain bike," said Jon Dulin, founder of Money Smart Guides. "It was a holdover from the prior season so I got a deal on it. That was about five years ago, and I still ride it a few times a week, as long as there isn't snow on the ground. ... It was a great buy because it helps to keep me healthy and spend some quality time with my friends."
10. Paid Cash for a 1996 Saturn SL
"The best thing I've purchase with my tax refund was our green 1996 Saturn SL," said Jacob, who founded site Cash Cow Couple with wife Vanessa. The couple jokingly refers to the car, which cost $1,700, paid in cash, as "The Green Machine," due to its verdant hue and continued reliability. "After graduating from college, we decided to take a different path than most," Jacob said. "Instead of buying new cars with our new jobs, we sold our previously owned cars to pay off student loan debt. We then decided to share this old Saturn to save on automobile expenses."
11. Took a Last-Minute Trip to Las Vegas
A decent-sized tax refund can be the room in your otherwise tight budget to splurge on something fun and memorable, as was the case with Nelson Smith from Financial Uproar. Doing so can replenish your financial discipline and help you avoid feeling deprived as you strive toward financial goals like saving for retirement or paying off debt. "Although I do try hard to not get a tax refund -- because the last thing I want to do is give the government an interest-free loan -- I found myself with a hefty tax refund last year due to bad planning on my part," Smith said. "Much fist shaking occurred. So I made the best of it and decided to take a quick trip down to Vegas. The weather was great, and I scored a terrific deal on a hotel room. Take that, Uncle Sam."
12. Paid Off Debt and Saved for Retirement
Another approach taken by John Schmoll of Frugal Rules is to apply the extra tax refund money to the most urgent financial needs each year, from paying off debt to saving for retirement or funding an upcoming family vacation. "I've always been fairly boring with any tax refund we've received as a family," he said. "When we were paying off debt, any funds we received were just applied towards the debt or put into savings. We've been debt-free for a number of years though so if we receive any sort of tax refund we usually put the majority of it towards retirement savings with a little bit of it being put towards our vacation fund."
13. Funded Christmas Festivities
Brian Fourman of personal finance blog Luke1428 sets aside some of his tax refund each year to help cover Christmas gifts. But last year, this fund led to a surprise trip with his family. "Last September, my wife and I gave our kids a choice: Either have Christmas as usual with each of them receiving gifts or go on a trip," Fourman said. "To our surprise, they chose to skip the individual presents and go on the trip."
Fourman and his family headed to South Florida. One of his favorite memories -- holding a giant python at a Miami zoo -- and has had a lasting impact. "My kids are still talking about our experiences," Fourman said. "Using our tax refund to fund that trip and build those memories was the best thing we could have done."
14. Paid Down $80,000 in Debt in Three Years
"The best thing my wife and I have ever bought with our tax refunds was actually a reduction in our debt," said Lance of Money Manifesto. "We used our tax refunds at the time to get us closer to paying off over $80,000 of my wife's student loan debt, which we completed paying off in just under three years from her graduation." Paying their debt off in just three years probably saved Lance and his wife thousands of dollars in interest, a great return on investment for their tax refund.
15. Enjoyed a Concert
AJ Smith of SmartAsset said the best things she ever bought with her tax refund were concert tickets. "My husband, my best friend and I took a road trip to see our favorite musicians in concert," Smith said. "It was an unforgettable weekend (I'm sure Jay-Z and Kanye would agree!)."
This story originally appeared on GOBankingRates.com.