Updated April 9, 2018: The average tax refund for a single American was $3,050 in 2016, per Uncle Sam. That big chunk of change might give you an urge to splurge, but it could also go a long way toward bolstering your financial health. Here are some truly adult ways to spend your tax refund.
1. Pay off high interest debt
Nothing sinks a budget quite like credit card debt. If you're carrying a big balance or an equally expensive debt, now's the time to pay. Otherwise, you're just accruing interest — and stress. Fortunately, we've got a few ways you can expedite paying down credit card balances.
2. Build up your emergency fund
If you don't have enough money in your savings account to cover a $400 expense — and, studies show, many Americans don't — use your refund to boost your coffers. Experts suggest having three to six months of income stashed away in case of an emergency, but even a few thousand dollars can help with unexpected medical bills or car repairs.
3. Buy life insurance
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 currently at a 20-year low — and easy to apply for. (We can help you quickly compare life insurance quotes across companies online.)
4. Save more for retirement
Consider depositing the money into an individual retirement account. (Note: There is a maximum you can contribute each year. For tax year 2018, the limit for individuals is $5,500.) You could also up the amount of your paycheck going into an employer-sponsored 401(k) account once you've put some extra money into your liquid savings. And, if you're feeling a little risky, you could look into investment apps or digital brokers.
5. Boost your HSA
Health savings accounts help people with high deductible health care plans cover out-of-pocket medical expenses. Bonus: The funds are tax-deductible (up to $3,450 for individuals; $6,900 for families).
6. Invest in a 529 account
College is increasingly expensive, so if you've got little ones, your tax refund could get a 529 plan started. These accounts come with a host of tax benefits at a federal level. Some states offer tax advantages for using one, too. 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.
7. 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 book a dream trip once you decided on where you want to go — and saved up enough cash to cover the expense comfortably. Move that rebate from Uncle Sam into a high interest savings account to expedite your trip.
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 for a bigger paycheck. Whatever it is, there are plenty of ways to invest in yourself that your tax refund could cover.
Image: Chelsea Victoria