Like most people, you usually look forward to this time of year: the days get longer, the weather gets warmer, and the tax refund arrives.
Filing taxes may not be your favorite activity and paying taxes is a big hassle, but the majority of us certainly reap the benefits: according to the tax authority, the average tax refund in Austria is about €800 per person.
Many people use the tax refund to afford a bit of extravagance they normally couldn't — for example, a pair of designer shoes or a new tablet. If your tax money is the only reason you can afford a vacation, you should really think twice about that expense. You can save the money or spend it, but consider using the tax refund for a good cause.
Below are some practical ideas for how you can use your tax refund.
Ways to save your tax refund
Top up your emergency fund
Prepare for life's unexpected events, such as a job loss, an urgent home repair, or a sick pet. During a crisis you want to keep a clear head without having to worry about finances.
By putting money into an emergency savings account, you won't have to take on high-interest credit card debt. However, it's generally recommended to have three to six months' worth of salary in your emergency fund.
Quick tip: Keep your emergency fund in a high-yield savings account so you can earn money on your savings.
Save for your retirement
If you don't have any outstanding high‑interest debt, use your tax refund to fund your retirement. Even if you have a retirement plan, it's still a good idea to contribute to an individual retirement account.
Invest in your children's education
A college education isn't cheap: tuition at a public university can be up to €700 per year — without room and board. At private universities, you can expect tuition starting at €300 per month. For this reason, it's never too early to start contributing to your child's tuition.
Save for a major purchase
Is your car on its last legs? Are you a young couple saving for a wedding? Will you make a down payment on your first home this year? Then open a savings account with your tax refund and plan to top it up over the course of the year.
Spend your tax refund
Pay off your debts
This step is recommended first by most financial advisors. The debts that likely carry the highest interest rates are your credit cards, so make paying them off your top priority.
Paying the monthly minimum may seem like a permanent solution, but quickly calculate the interest you will pay over time. You are likely to be motivated to pay the debt off all at once.
Once the credit cards are paid off, you can further reduce your debt by paying down part of your student loan, auto loan, or mortgage.
Important: Make sure that your loan agreement does not include a prepayment penalty before you start wasting money, says Sebastian Dorsch of the renowned loan portal VAIDOO.
Investments in your home
Even if your refund amount will probably not finance a complete kitchen renovation, it could help you fund some simple improvements. These can increase the value of your home. You could replace your water heater or your stove, repair your leaky roof, or replace your old appliances with energy-efficient ones.
You can also consider cosmetic upgrades, such as installing new lighting, replacing old faucets, and painting your front door.
Building an investment portfolio
For example, you can make your money work for you if you don't need the extra cash right away. You might take the opportunity to make a small investment in stocks, bonds, or mutual funds.
Because the idea of investing can be intimidating, you should first learn a bit about the different investment options available to you.
Then determine your goals and your risk tolerance: Are you more inclined toward an aggressive approach? Do you prefer active or passive management? Do you favor growth or value investing?
Finally, research financial advisors and brokers as well as online trading platforms. After choosing your asset manager, you can select your investments and start earning money.
How you can get creative with your tax refund
As an alternative to the suggestions above, you could spend your tax refund on something less conventional. Look for offbeat ideas for how to spend your refund—you might find the right idea here.
Invest in your health
You can improve nutrition at home with a new kitchen appliance or a freezer, or by starting a garden so your family can enjoy fresh produce.
With a monthly gym membership, a dance class, or by purchasing exercise equipment for your home, you can also prioritize physical activity.
Expand your income opportunities
With additional training, such as an online course or seminar, you can earn more money in the future.
To improve your skills, you can attend a training, take a course, or enroll in a diploma or certificate program at a local college. If distance is a barrier, you can also explore open educational offerings online.
Donations
Choose a charitable cause you care about and donate your tax refund. For example, you can donate to local food banks, shelters, and arts and cultural organizations, or consider global relief organizations.
Conclusion
Your tax refund may seem like „free“Money may appear, but in reality a tax refund means the government withheld too much tax from your paycheck all year. That money belonged to you the whole time.
The tax return should not be treated differently than a paycheck. You need the extra money; use it wisely. If your financial situation is good, you can spend some money.
