5 Things You Should Do If You Receive a $500 Tax Refund
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Taxes are being filed, and many people are eagerly anticipating a tax refund. If you’re due one that’s in the ballpark of $500, which is not a stunning amount of money but enough to be significant, you might wonder what to do with it.
It’s easy to spend $500 quickly, particularly in these days of high costs of living. But is that your best bet? Financial experts offered some tips.
Invest In Your Future
If you don’t need that $500 immediately for bills, Christopher Stroup, a CFP and founder of Silicon Beach Financial, recommended you invest it in your future by opening or contributing to a Roth IRA.
“Even $500 invested annually can grow significantly over time thanks to compound interest. This is a smart way to build long-term wealth without a big upfront commitment,” he said.
Your tax refund can be a great opportunity to jump-start or grow other investments, too, according to Daniel Pifer, a financial advisor with Northwestern Mutual. “Putting your refund to work can help you build long-term wealth and get you closer to achieving the financial future you want, like buying a home, paying for college or saving for retirement,” Pifer said.
Boost Your Emergency Fund
If your emergency savings is low, a $500 cash infusion is a great opportunity to strengthen it, Stroup said.
Indeed, according to Northwestern Mutual’s 2024 Planning and Progress Study, 4 in 10 Americans (40%) do not have any emergency savings, Pifer explained.
“This means if an unexpected expense came up, they’d have to rely on credit cards, loans or even their family and friends,” Pifer said. This type of emergency could be anything from a car repair to a medical bill.
By putting your $500 tax refund into a high-yield savings account dedicated to emergencies you are prepared for any future emergencies. “Even a few hundred dollars can make a big difference,” Pifer said.
Eliminate High-Interest Debt
Got a credit card balance? Use your refund to pay it down since carrying debt can make it a challenge to achieve your financial goals, Pifer pointed out.
“To effectively pay down debt with $500, prioritize your debt with the highest interest rates. Consider using your tax refund to pay down a balance leading to savings in both time and interest. “
Reducing debt now saves you from paying interest later. This frees up future cash flow for investments and business growth.
Invest In Your Business or Career
If you’re an entrepreneur or have a side hustle you might like to scale, even small investments in your skills or company can lead to higher earnings and better opportunities in the long run, Stroup pointed out. “Upgrade a key business tool, enroll in an online course or attend a networking event.”
Optimize Your Tax Strategy
While it may feel good to get money back at the end of the year, a $500 refund means you likely overpaid in taxes throughout the year, Stroup said.
“Work with a tax professional to adjust your withholdings to ensure that you keep more of your money in your paycheck instead of giving the IRS an interest-free loan.”
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