Smart Ways to Use Your Tax Return
Tax season is here, and for many early childhood teachers, a tax refund can feel like a well-earned financial boost. Whether your refund is big or small, making intentional choices with this money can set you up for a more secure and stress-free financial future. Remember, this isn’t "free money" — it’s your hard-earned income being returned to you!
In this video, BOOST Director of Teacher Success Whitney Carper offers three potential options for using your tax return. Here’s a breakdown of these tried-and-true ways to strengthen your financial foundation and invest in your future.
1. Pay Off Debt
If you’re carrying credit card balances, student loans, or other debt, using your tax return to pay down what you owe can provide long-term relief. High-interest debt, like credit card balances, can quickly become overwhelming, so prioritizing those payments can free up more of your monthly income for other important expenses. Even a small payment toward your debt can reduce interest costs and help you move closer to financial freedom.
Here are two popular strategies for tackling debt:
The Avalanche Method: Focus on paying off debts with the highest interest rates first while making minimum payments on the rest. This method helps reduce the overall amount of interest you pay over time.
The Snowball Method: Start by paying off the smallest debts first to gain momentum and motivation, then move on to larger balances. This method can provide a quicker sense of accomplishment and encourage you to keep going.
2. Build or Boost Your Emergency Fund
A strong emergency fund is important for financial security. Surprisingly, 40% of Americans have less than $250 saved. And with life’s unpredictability, like unexpected medical bills, car and house repairs, or job interruptions, one setback can turn into a financial crisis if you’re not prepared. Experts recommend saving 3-6 months’ worth of essential expenses, but any amount can help provide peace of mind. Consider placing your emergency fund in a high-yield savings account so it remains easily accessible while earning interest. If you don’t have one yet, your tax return can be a great way to start. If you already have some savings set aside, consider using your refund to increase that cushion so you’re better prepared for the unexpected.
3. Save for Your Retirement
If your debt is under control and your emergency fund is solid, consider investing in your future. Retirement planning is important at any age because the earlier you start, the more time your money has to grow.
If your employer offers a 401(k) plan and you aren’t already contributing, consider using part of your tax refund to get started. Take advantage of any employer matching contributions—it’s essentially free money! If your workplace doesn’t offer a retirement plan, an IRA (Individual Retirement Account) is another great option.
There are two main types of IRAs:
Traditional IRAs: Contributions may be tax-deductible and grow tax-deferred until withdrawal.
Roth IRAs: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
Even small contributions can add up significantly over time, thanks to compound interest.
What Not to Do With Your Refund
While it may be tempting to splurge on non-essential purchases, making impulsive decisions with your tax refund can prevent you from reaching your financial goals. Here are a few things to avoid:
Let It Sit in Your Checking Account – Without a plan, it’s easy to spend mindlessly. Consider setting financial goals in advance to maximize its impact.
Unnecessary Splurges – While treating yourself isn’t inherently bad, avoid spending your entire refund on luxury items or experiences that don’t contribute to your long-term financial health.
Use It for a Down Payment on More Debt – Buying a new car or financing another large purchase with your refund can lead to additional monthly payments and long-term financial strain.
Make Your Money Work for You
However you choose to use your tax return, being intentional with your financial decisions can help set you up for long-term success. Whether you’re paying off debt, saving for the future, or investing in your career, taking small steps now can create lasting benefits. Make a plan, stick to it, and watch how these financial choices help you build a stronger, more secure future!
BOOST is here to support early childhood educators — reach out to our Director of Teacher Success Whitney Carper at wcarper@boostbyhinge.org if you need help navigating financial challenges.