MONEY > BASICS | FEBRUARY 2, 2025
Five Smart Ways to Spend Your Tax Refund in 2025
Photo by Towfiqu barbhuiya on Unsplash
Every tax season, millions of people ask themselves, “What should I do with my tax refund?” For many of us, it’s the most significant paycheck we receive all year, and it can be a struggle to figure out how to make the most of it.
A tax refund can help set you up for the future, but making wise decisions with your money means thinking about what happens next. You’ll want to set up a spending plan to stretch your refund.
1. Make An Extra Payment On Your Mortgage
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years.
Be sure to add the entire payment to the principal. By reducing the principal, you can reduce the interest you pay over the long term, allowing you to pay the mortgage early and own the home outright in 25 to 26 years instead of 30.
2. Invest in Yourself
Consider investing your refund in a retirement account like a
. Investing early is an excellent way to spend your tax refund because it will allow your money more time to grow.
An IRA is one of the most popular ways to save for retirement because it offers some significant tax advantages, including the ability to withdraw your money tax-free before retirement. It’s such a powerful investment tool that the government monitors your contributions and limits how much you can deposit each year.
I love IRAs because you can withdraw money throughout various stages of life, tax-free.
Roth IRA rules require that your funds sit in your IRA account for a minimum of 5 years, but after that, you can withdraw the contributions* you made, tax and penalty-free.
…….but you can avoid penalties if you meet the conditions below.
•Withdraws are taken at age 59½ and above
•The withdrawals (up to a $10,000 lifetime maximum) are used for a first-time home purchase.
• The withdrawals are used for qualified education expenses.
• The withdrawals are used for qualified expenses related to a birth or adoption.
• You become disabled or pass away.
• Used to pay for medical expenses or health insurance if you are unemployed.
*Contributions – money you deposit into your IRA account
*Earnings – profit that grows tax-free in your account
3. Home Improvement
Use your refund for home upgrades or repairs that can maintain or help increase the value of your property. Your home is your castle, but it can look more like a rundown shack if you don’t keep up with the maintenance.
Here are a few ways to spend your tax refund yo help keep your home in tip-top shape.
a. Clean the fireplace
b. Paint the kitchen cabinets
c. Update knobs and door pulls d. Install a new front door
e. Pressure wash the exterior
f. Clean the gutters g. Clean the driveway and walkways
h. Tidy up the landscaping
You can transform your home with a few dollars, sweat equity, and a DIY attitude.
4. Education/Professional Development
Invest in your education and spend your tax refund on courses, attend workshops, or get certified to enhance your skills and career prospects. A certification is a credential that demonstrates you have the knowledge, experience, and specific skills needed in a particular field or job.
The proper certification can open new job opportunities, enhance your credibility in the field, and increase your salary. There is a massive demand for people who know Google Cloud Platform or have some experience in using Google Cloud Platform for DevOps, Machine Learning, and Big Data.
Many big-name companies like Twitter, LinkedIn, Twitch, and Facebook use cloud computing to run their businesses. Each Google Cloud certification costs, on average, between $99 and $200.
Before pursuing any course, check with your employer to see if the company will benefit from increasing your skill levels.
5. Invest for the future
Side hustles aren’t new, but in today’s economy, they’re more popular than ever. Whether you’re building your skillset or just getting your passion projects out in the public, a side hustle can be a way to increase your wealth and overall ability to get ahead and stay ahead.
Most importantly, starting a side hustle is the best way to build a business you love. According to Bankrate, the average person with a side hustle makes $810 monthly from that extra work. For some, this type of additional income is worth exploring.
Turning your favorite pastime into a business takes start-up capital. Your tax return could serve as seed money to build your inventory, training, subscription, and memberships.
Final Thoughts
Before treating yourself to luxury items, make sure to review all of your financial obligations. Don’t let a lump sum of cash distract you from what is essential. Revisit your current financial goals and determine how the influx of money aligns with your life goals.
*This article is based on publicly available sources and is intended for informational purposes only. We do not claim ownership of the content used and encourage readers to refer to the original materials from their respective authors.