Tax Hacks 2019: How Not to Blow Your Tax Refund

Ready for a nice, fat tax refund check from Uncle Sam? Before you get too excited, soberly think about how easy it is to waste that money foolishly.

All too often, extra money makes people splurge, even while they imagine they’re saving it. How do you make sure this year’s windfall makes your life better over the long haul? Try these nine ways.

No. 1: Pay down high-interest debts

Bacho /

High interest rates on your debt can lead to devastating costs. Eventually, you can end up with payments so large that it becomes difficult to do more than pay the minimum required each month.

That’s why one of the best uses for a windfall is to use it to pay down debts with the highest interest rates.

Think of this way: Paying off a debt with a 15 percent interest rate is like earning 15 percent, risk-free and tax-free. That’s an investment virtually impossible to find these days.

If you’ve used your tax refund to pay down debt but are still saddled with high interest obligations on credit cards or payday loans, use this moment to escape the cycle. Go to our Solutions Center to search for trustworthy sources of free credit counseling and get help.

No. 2: Pay off small debts

IOU note
Thinglass /

Paying off high-rate debt first generally makes the most financial sense, but it might not work for you. Some people get more satisfaction from demolishing smaller debts first. Then, as they see those debts fall by the wayside, they have more motivation to tackle bigger debts.

A reader discussed the potential value of such an approach in “How I Wiped Out $37,000 of Debt in One Year.”

Remember, be careful not to run up new debt and dig yourself back into the same hole.

No. 3: Fatten your emergency fund

Atomazul /

You are debt-free? Bravo! In that case, strengthening your financial safety net may be the next best use of a tax refund.

Opinions differ on how much to save for emergencies. Many experts advise keeping enough money to cover expenses for six months or longer.

Ask yourself the following: If you lost a job, how long could you expect to be unemployed? The length of time someone is unemployed typically depends on the type of work he or she does, and the state of the economy.

Your savings should be greater if you’re older because it often takes older workers longer to find work.

No. 4: Save for retirement

designer491 /

Saving for retirement should be a top goal. A Money Talks News reader named Retha asked MTN founder Stacy Johnson whether it makes more sense to save for retirement or to pay down the mortgage. Stacy’s answer was clear:

Job one for people in Retha’s position should be to put aside as much as possible in tax-advantaged retirement accounts. Priority two should be saving as much as possible outside of retirement accounts. Only after building a comfortable cushion should you use spare cash to pay down a mortgage.

For more detail, check out: “Ask Stacy: Should I Save More for Retirement or Pay Down My Mortgage?

No. 5: Save for college

New college graduates pose with their diplomas
michaeljung /

Whether it’s for your education or your kids’ schooling, apply your refund check to a college savings plan that offers tax benefits in addition to saving money for college.

No. 6: Invest in your productivity

Monkey Business Images /

You also can leverage your refund to grow your earnings. Here are three ways to do it:

  1. Get more education: Sign up for a workshop or course, or attend a conference or webinar. Upgrade your skills, or try out a new field.
  2. Invest in the right clothes: Get a tasteful, understated but impressive outfit for work or job interviews. Make sure it’s one that makes you feel like a million bucks — and include some good shoes.
  3. Buy the equipment you need: Get the new laptop, tool or piece of electronic equipment you need to move ahead in your field.

No. 7: Hire a career coach

Career coach
shyshak roman /

Career coaching can help you discover strengths, identify where you can use help, set goals and strategize. There are many ways coaching can help further your career.

No. 8: Contribute to charity /

Do good for others while helping yourself earn a healthy deduction on your taxable income in the next round. Make sure to get a receipt for your contribution, and be sure the organization you support is a legitimate charity, as defined by the IRS.

No. 9: Start a business

Monkey Business Images /

Make your refund your grubstake. Start the business you’ve been dreaming of, whether it’s consulting, opening a coffee cart or retail outlet, selling your crafts or patenting an invention.

What will you do with your tax refund this year? Share your thoughts in comments or on our Facebook page.

Earn more interest on your savings

Are you earning as much interest on your savings as you could be? Grow your savings faster with banks offering rates that are significantly higher than the national average. Find the best rates and start earning more interest on your savings by using the Money Talks News savings account and CD comparison tool.

Read Next
13 Small Gadgets Under $20 That Make Life Better
13 Small Gadgets Under $20 That Make Life Better

These inexpensive electronics will make your day-to-day life a little easier — and happier.

7 Things You Should Do Before Claiming Social Security
7 Things You Should Do Before Claiming Social Security

To get the most out of your Social Security retirement benefits, you have to think ahead.

9 Free Things That Used to Cost Us Money
9 Free Things That Used to Cost Us Money

Not everything is getting more expensive.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started


Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.

Trending Stories