According to the Internal Revenue Service (IRS), the average 2016 tax refund for an individual was $3,050. To put that into perspective, the median household income in 2016 was $59,000. Even though not all households file as individuals, that average refund is still a huge chunk of change.
With your refund, you could do lots of fun things you couldn’t afford before. You could buy a new set of furniture for your living room or take the family on a cruise to the Caribbean. Heck, you could even head to the casino and bet it all on black.
Sure, these all sound fun, but you may want to think twice about any of them. After all, you could do that adulting thing and use your tax refund to improve your financial situation in a lasting way. Sure, this may not be as fun, but the benefits can be very meaningful.
Here are some truly adult ways to spend your tax refund.
1. Save more for retirement
Even if you're already putting money aside from each paycheck toward your retirement account — whether a 401(k), Sep IRA, Solo 401(k) or similar account — you may be able to stash away even more cash.
It's important to note that there is a maximum you can contribute each year. For the 2017 tax year, you can contribute up to $5,500 to a Roth IRA or traditional IRA (or both accounts combined) up until tax deadline day in April. Otherwise, your funds will go toward the following years limit.
Already contributing the max amount to these accounts? You may decide to consider other investments that could help fund your retirement or do something else on this list with your refund.
2. Build up your emergency fund
If you don’t have an adequate emergency fund, or it's on the thin side, using your tax refund to build one is a smart move. While many experts suggest having three to six months worth of income stashed away in case of an emergency, even having a few thousand dollars can help in the event of emergency medical bills or an unexpected car repair.
3. Boost your HSA
Health Savings Accounts (HSAs) make it easy to save for health care expenses, provided you have a high deductible health plan, or a minimum deductible ($1,350 for individuals; $2,700 for families). Money is deducted directly from your taxable income (up to $3,450 for individuals; $6,900 for families) and you can take tax-free withdrawals to cover qualified health care expenses.
4. Pay off high interest debt
Not only will you save some stress by paying this off, but paying it off (or down) means you can save on interest charges. Whether it's a loan or a credit card, paying off as much as you can is a smart way to use that refund.
5. Invest in a 529 account
If you’re already saving heavily for retirement and future health care costs and don’t have debt, you could always save money for your kids in a 529 plan. These plans let your money grow tax-free until you can withdraw for qualified college expenses.
Some states offer tax advantages for using one, so make sure to check your state to see what benefits, if any, are offered. In Indiana, for example, you get a 20% state tax credit on the first $5,000 you contribute each year. That works out to $1,000 back at tax time, if you max this out.
6. Start a travel or activity fund
Blowing your tax refund on an all-inclusive getaway sounds like a blast, but what if you saved for a while first? By using your tax refund to start a travel fund, you can think on it for a while then book a dream trip once you decide what you really want.
Having this can also be helpful if you frequently come across activities you want to do but can’t afford. The bottom line: Save your tax refund in a high interest savings account and see what happens. Eventually, something you really want will come along and you'll have the funds (or at least most of them).
7. Buy life insurance
If you don't already have it already, you could also use your tax refund to get a life insurance policy. It’s hard to come up with any responsibility more “adult” than protecting your family in case something happens to you. Fortunately, life insurance is at a 20-year low and it's easy to apply for it online.
8. Invest in yourself
Maybe you want to take a course to improve your skills or get certified so you have more job security or can qualify to get a bigger paycheck. Whatever it is, there are plenty of ways to invest in yourself that your tax refund could cover.