4 Smart Things You Can Do with Your Tax Refund
Every year, most Americans get a tax refund. Getting a large check from the government is a nice feeling, but before you start spending it on stuff you don’t need, take a moment to see your refund as an opportunity to make your future better. Here are five smart things you can do with that giant check to put cash in your pocket and smarten up your finances.
Build Your Emergency Fund
Saving for an emergency fund should be a fundamental part of your financial plan. Using your refund to start an emergency fund could leave you breathing easier should a sudden expense arise, like a job loss, medical emergency, or major repair. Having this type of accessible savings could help you avoid seeking out short-term loans at high-interest rates or carrying credit card balances for an extended period.
Pay Off Existing Debt
Tax refunds can be used for purchasing all kinds of things, but if you’re carrying a credit card balance or have an outstanding loan balance, consider using your tax refund to pay that off. This could make a lot more sense financially than placing the IRS check in a fund yielding 1% interest and paying 18% interest on a credit card balance. This would also free up cash to put in the bank every month once those minimum payments vanish from your list of bills.
Save for Your Retirement
If you’re not actively saving for retirement because you think it’s too expensive, the money that’s returned to you on your tax refund might be just what you need to open an account. Opening a traditional or Roth IRA is a great way to invest in your future and help secure a comfortable retirement. Use your tax refund as a way to jumpstart your IRA deposits.
Put Money in The College Fund
College tuition costs continue to rise, so the earlier you start saving for it, the better it is. While 529 plans are designed to encourage long-term saving, they also allow flexibility if you need to access your funds in a pinch. If you’re planning to start a family soon or already have kids, putting your tax refund check in such a plan could help.
