7 Ways to Use Your Tax Refund Wisely
If you’re expecting a tax refund this year, it may be tempting to spend it all at once. But a tax refund is a great opportunity to set yourself up for a brighter financial future. Remember, you worked hard for this money; treat your refund check just as you would your monthly paycheck – use it wisely! Looking for ways to put that tax refund to work? Here are 7 smart things you can do with your tax refund.
1. Pay Off High Interest Credit Card Debt
If you have high-interest credit card debt, paying it off is one of the best investments you can make with your tax refund. It’s a major step towards financial freedom.
Making only the minimum monthly payment on your credit cards can cost you hundreds to thousands of dollars over time. To dig yourself out of credit card debt you have to make more than the minimum monthly payment. A lump sum from your tax refund can help you pay down the principal and make significant headway towards paying it off.
If your refund doesn’t cover the entire outstanding balance, pay down as much of the balance as you can and look into other options to take care of the rest. A debt consolidation loan with a fixed rate can be a great option; checking your rate only takes a minute and can be done online.
2. Create or Contribute to Your Emergency Fund
Creating or contributing to your emergency fund is one of the best things you can do to protect your financial health. One of the main reasons people rack up high-interest credit card debt is because they don’t have enough funds to cover an emergency or an unexpected expense. Using your tax refund to jumpstart your emergency fund can save you from turning to expensive credit card debt as a last resort in the future.
3. Put the Money Away in a Savings Account
If you’re debt free and have enough saved up in case an unexpected expense occurs, consider putting your extra money into a high-yield savings account and start saving for a specific goal or purchase. A high-yield savings account is a deposit account that offers higher-than-standard interest rates and usually has some requirements associated with it. When you open a high-yield savings account, the money you deposit earns interest that compounds at set intervals, like daily or monthly. Interest rates vary by account, but some high-yield savings accounts offer an Annual Percentage Yield (APY) of more than 4%.
4. Put it Toward Your Retirement
Saving for retirement may feel easy to postpone. The truth is too many people approach retirement age and realize that they started savings too late and aren't financially ready to retire.
Add your tax refund to an existing retirement account, or if you don't have one already, set up a tax-advantaged investment account like an IRA. It may be hard to prioritize something that seems so far away, but when you see that investment grow over time you won’t regret the choice you made.
5. Spend it on Something You’ve Been Putting Off
Have you been putting off car repairs? Need to fix a leaky pipe? Spending your tax refund money on something high on your priority list – something you need or use all the time – is a good investment. Often, money spent now can save you more in the long run. If you don’t fix that one thing that keeps acting up in your car or the minor leak in the roof, the problem can get worse and end up costing a lot more to fix than it would now.
6. Pay it Forward
When you’re living on a tight budget, donating to a charitable cause doesn’t always make it on the list. Getting a tax refund can give you the flexibility to give back to a cause that matters to you. Plus, charitable donations may offer some tax benefits that could provide a nice little bonus when you file your taxes next year.
7. Invest in Yourself
If you’ve covered all of the above, invest in your well-being or your future. Maybe you’ve always wanted to take cooking classes, or a photography workshop. The extra funds from a tax return can help you make those hopes a reality.
Final Thoughts
Using your tax refund responsibly is an investment that can help you build a better financial future or fund opportunities that matter to you. It's easy to spend your refund on things you want and don't necessarily need. In the long run, using your tax refund wisely will set you up for a better tomorrow.
Upgrade does not provide investment, tax, or legal advice. This material has been prepared for educational purposes only. You should consult your tax or investment adviser prior to investing or preparing and filing your tax return.
