Here in the US, April means "Tax Day" (April 18 this year). Filing your taxes can be a hassle, and it's particularly harsh if you have to pay additional taxes.
However, some people look forward to getting a tax refund. If you're one of those people, you might want to just go out and blow it on something fun, or a night on the town. Hold your horses! That may not be the best way to use that money.
Consider The Options For How To Spend Your Tax Refund
What are your options? The good folks at Earnest have put together a great infographic that take you through some of the stats, options, and the pros and cons of each - check it out:
When I look at the options in this graphic, my bias would be to pay down outstanding debt first starting with the highest interest rate. You should also consider “refinancing” high interest rate debt by transferring it to a lower-interest loan or line of credit. For example, you could refinance your student loans for a lower interest rate. This will give you more leverage from the money you earn, and your future self will thank you.
A Big Refund Is Probably Not A Good Goal
If you got a big, hefty refund, I'd talk with a tax advisor about how to adjust my withholding allowances to reduce the size of next year's refund. While it may feel good to get a big check for a refund, a big refund means you overpaid taxes and effectively gave the US Federal Government a free loan for most of the year. Changing your withholding so that you get a small refund at the end of the year means you have more money in your pocket each pay period.
Of course, if your tax refund is the only savings plan you have, that is another story. A financial advisor can help you develop a more strategic savings plan.
If you want to build a better plan on your own, I know people who swear by "The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness" by Dave Ramsey. It is a no-nonsense approach based on sound advice and no gimmicks.