All year we pay into our taxes. And, at the end of year, the government gives back anything we’ve overpaid in the form of a tax refund.

Refunds are great – they provide extra cash to line our pockets. But if you’re one who gets a sense of euphoria upon receiving your refund, I urge you to fight the initial impulse to spend it frivolously.

Instead, I recommend you dedicate those funds to something that will pay dividends. Here are a few recommendations on how you might do that:

1. Pay debt

Debt is ubiquitous. It’s everywhere.

According to the Census Bureau in 2011 (the last time such a survey was conducted), the percentage of American Households in debt stood at 69%, with average unsecured debt at roughly $7,000.

This quantity of unsecured debt is significant for two reasons.

First, unsecured debt (i.e. credit cards) is generally more frivolous than secured debt (i.e. home mortgages, car notes), and when present, represents a household that frequently doesn’t have its priorities in place properly.

Secondly, unsecured debt carries with it a high interest rate, much higher than the interest on a home mortgage, for example.

Given enough time in this high interest rate morass, your prospects at retirement start to look bleaker and bleaker. And as it turned out, those meals out with friends, or that new pair of designer boots, were not a good idea.

But there’s something you can do: use your tax refund to turn over a new leaf and pay down some of that unsecured debt. Then, after you’ve paid the debt off, take the money you would have spent over the course of the years on minimum payments and place it in a retirement account, like a 401(k) or an IRA.

With compounding interest and the general tendency of the markets to increase over large spans of time, you’ll probably make out pretty good. Trust me on this one, your 65-year-old self will thank you.

2. Start a side business

Think about what you do for a living.

Now think about how that could be made useful outside of your formal employment, in the context of a small business you could operate in your spare time.

Or, if you can’t bear the thought of doing anything related to your occupation in your hours outside the office, then think about what you like to do.

Chances are, between what you’re trained to do and what you enjoy doing, there’s an opportunity to make some extra money. And extra money adds up.

If you were to make just an extra $50 a week from the time you were 30 until you retired at 65, your gross lifetime income would have increased by $91,000. Wouldn’t it be nice to have that much more money in an IRA when it comes time to stop working?

However, generally speaking, even a small business requires seed money. This is where your tax refund comes into play.

Even if you got a refund of only $500, that’s a pretty good chunk of what it costs to develop a simple website so you can establish an internet presence. Plus, to add an extra incentive, the government allows for the deduction of startup costs against your income up to $5,000, upon election.

So starting your small business with money from your tax refund is even less of a gamble, because if all else fails, you can deduct the money that you spent initially.

My experience is that business ideas are never bad when pursued with vigor, prudence, and strategy. Hence, go for it, and use your refund to get started.

3. Change your perspective on the world

Everyone sees the world through the lens of his or her own experiences and predilections. That’s to be expected.

But rather than being complacent by accepting your limited worldview, I recommend that you seize the day with your tax refund, and explore the world from a different lens.

Go to foreign films, monster truck rallies, the ballet. Read books about topics that make you cringe.

Take a trip. It doesn’t have to be far. It might only be a few miles from your house. All that matters is that your perspective is challenged.

Or, here’s a thought: For less than $50 you could buy this — they’re binoculars. And then go bird watching, because birds are beautiful and awesome.

I know I may sound like a hippie, but it’s the little things in life that make it worth living. Test your comfort zone, and it might allow for some personal or spiritual growth.

Let us help you get your tax refund

If you have a refund coming to you and you want to maximize it, get in touch with us today and we’ll help you get what’s rightfully yours.