If you’re expecting a tax refund, there are smart ways to use the money to help fund a better financial future. Skip splurging on a shiny new speedboat or a tropical vacation, and focus more on contributing to your overall financial wellness. Here are seven options for using your refund that make better financial sense.
1 Start an emergency savings fund
Many Americans admit they have little, or nothing saved in the form of an emergency fund. The lack of emergency savings can leave your family hurting financially in the event of a job loss, medical emergency, or expensive home or car repair. Using your tax refund to start or build your emergency savings is not only a smart financial move but one that will leave you better prepared for the unexpected.
2 Pay off debt
There’s nothing more stressful than lingering, high-interest credit card debt. Does your credit card balance seem to keep growing and growing month after month, even though you’re making the minimum payment? Paying off high-interest credit card debt with your tax refund can save you a bundle of interest. If your refund won’t cover the entire balance, you may want to consider a low-interest introductory balance transfer offer, such as the one at Choice One. Free yourself from high-interest debt by applying your refund to the balance and transferring any remaining to a lower-interest card. If you don’t have much credit card debt, you can use your refund to pay off an auto loan or personal loan. It will help you enjoy the sweet taste of financial freedom.
3 Put it towards retirement
Financial freedom starts with a healthy retirement savings plan. Consider depositing your tax refund into your retirement account. You can invest in a Traditional IRA or a Roth IRA. Your financial advisor can help you determine which is best for you. Best of all, that money will continue to grow. Click to learn more about the different retirement account options available at Choice One.
4 Invest in education or training
Whether you’re looking to go back and further your education for career development, or your goal is to help your kids pay their tuition, education is a great use of your tax refund. If you’re not ready to use it right away, you can always deposit it into a college fund now for future use. A Coverdell Education Savings Account (ESA) is ideal for saving for educational expenses for your children and grandchildren. The accumulation of interest and withdrawals are tax-free as long as the funds are used for financing education expenses.
5 Pay down your mortgage
Making extra principal payments on your mortgage or making extra mortgage payments is a great way to save money in interest over the life of the loan. Even if you make one extra mortgage payment every year with your tax return, you pay off your mortgage much faster and save significantly on interest.
6 Use it towards the down payment on a new home or auto
If you are in the market for a new home or vehicle, using your tax refund towards a down payment makes smart financial sense. Investing in a home or vehicle is a wise investment that will provide you with something of value. A nice down payment can also help lower your monthly payments.
7 Use your tax refund to increase the value of your home
Putting your tax refund towards home improvement projects can help upkeep your home, as well as increase the value. Investing in energy efficiency, updating your kitchen or bath, replacing aging appliances, or adding professional landscaping, are all smart ways to spend your refund. Carefully planned home remodel projects can also help you get more back on in the eventual sale of the home.
Use your tax refund wisely
While it doesn’t hurt to have a little fun, you can enjoy a more comfortable financial future when you use your tax refund responsibly. We hope the tips above give you some ideas for putting this year’s tax refund to good use.