You did it right! You paid your taxes every quarter. You tracked your business expenses diligently. And as a result, you’re getting a tax refund this year. Congrats! An extra injection of cash is always a pleasant surprise (the average refund in 2018 was $2,781) but it can sometimes be difficult to choose what to do with it – there are so many possibilities! In 2019, 32% of Americans said they used their refund to reduce debt. You can of course do that, especially if you’re paying a high interest rate, but here are a few other ideas:
Take a vacation
Let’s be clear: there is nothing wrong or irresponsible about this option. You worked hard. You saved money (technically you did, you just gave it to the IRS instead of putting it in a savings account!). It’s okay to treat yourself to a reward. You only live once, and it’s important to get some rest and visit the world, friends or family. No matter what anyone says, going on a trip and taking time to recharge can be a fantastic way to spend your refund. (If you’re thinking about going this route, check out our tips for taking time off as a freelancer.)
Increase your productivity
Do you lose one hour a day staring at your computer waiting for it to reboot because it froze? Does your old phone need to recharge every 4 hours, keeping you from answering emails on the go for the second half of your day? Use your refund to upgrade the tools you use to do your job and increase your productivity. That investment can even potentially help you generate more revenue this year.
Expand your offerings
Do clients often ask you to do something you don’t know how to do or are not certified to do? Use your extra cash to invest in yourself, learn a new skill, take a certification class and increase your offering this year. Check your local community college, your library, online courses… If there’s a skill out there you want to learn, there’s definitely someone who can teach you!
You can save specifically for your retirement by moving your money into an IRA or a Solo 401K. Or if you’re more of a risk-taker, you can invest in the market. Many investment companies (TD Ameritrade, Fidelity, eTrade…) now offer free brokerage accounts with $0 commission on simple trades (ETFs, US stocks…) which allows you to invest in the marketplace without any overhead. Don’t be scared. It’s not as complicated as you might think and most accounts don’t require a minimum investment, so you can start as small as you’d like, gain confidence, and build from there.