As a college student, doing your taxes is pretty great because you almost always get a good chunk of cashback from the government. This is exciting, but that windfall is more than just a chance to get some new shoes. It’s an opportunity to get you in a better financial situation and even start preparing for your future.
Pay off your high-interest debt
Hopefully, by now you’ve figured out that credit card debt is really bad, and that you don’t want your future self to be paying 20% interest on junk you don’t need. Chances are, though, that you didn’t learn this right away, or some emergencies came up and you currently have some credit card debt. This sudden chunk of change is the perfect chance to significantly reduce your high-interest debt, which can save you hundreds or even thousands over the years.
Student Credit Card debt should be the first thing to go. The interest rates are usually outrageous, and leaving a balance on a credit card is almost always a bad idea. Put most of your money towards credit card debt as quickly as you can. For other debts, like car loans and student loans, there are some different things to think about. If the interest rate is incredibly low, it might make more sense to save the money and continue making your monthly payments while your money is building on itself at a higher rate than your debts. Some people, though, hate having the weight of debt on them; in that case, get rid of the debt if it will make your life happier and more worry-free.
Get your savings going
If you don’t have any high-interest debt, good for you! You now have the opportunity to start saving for your future. Putting your money into a Roth IRA (which you can also use for a down payment on your first house) or some other kind of retirement account will give you a chance to earn interest and make your future situation a little brighter. The beauty of compound interest is that the earlier you get started, the more money your money will make, so even putting in a little to get started will help you in the long run. If you think you might want to retire before you’re 65, or you may want to purchase a house in the next decade or so, now’s the time to start preparing.
Have some fun
Even though it’s necessary to get rid of debt and start your savings, it’s important to enjoy yourself, too. Depriving yourself or being frugal to the point of unhappiness is not a very good idea, and you should make sure that you avoid creating a situation where you sacrifice to the point that blows a ton of money on something stupid. Instead, take somewhere between five and ten percent of your tax refund and spend it on yourself. Even something as simple as a nice dessert or a new item of clothing can perk you up enough to keep you content even while putting most of your money towards smart choices that will help you in the future.
Windfalls like tax refunds can be a great opportunity to get yourself financially stable and begin contributing to savings, and they’re also a chance to let your hair down a little. College can be a very difficult time when it comes to finances, so a little extra cash is a pretty exciting thing. As long as you don’t let yourself get out of control and you use most of it responsibly, your tax refund will be put to good use and make your life better in the long run.
