The 6 Best Ways To Spend Your Tax Refund
Have you thought about how you’ll spend this year’s tax refund? Some ideas here.
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While it may be tempting to spend your tax refund on luxuries like jewelry or a down payment on a new car, here are better ways to put that money to use.
1. Build your emergency fund.
Want to do your best to stay out of debt? One of the best ways to do so is to make sure you have enough money stashed in your emergency fund for a rainy day.
If your emergency fund is nonexistent, you’ll have to take out a loan or use credit to fix an unexpected issue, such as car repair, when it appears.
To pay off that debt, you may be looking at several months or years of tighter monthly budgets.
Some suggest putting at least half of your tax refund into an emergency fund. Doing so can help you approach the recommended level of three to six months’ worth of expenses.
2. Pay down debt.
With some money socked away in your emergency fund, your next best move is to pay down any outstanding debt.
Will one refund get you entirely out of all of your debts? Probably not, but anything helps.
As for which debts to pay down first, aim for the ones with the highest rates of interest. Put down a lump sum instead of a minimum payment so you can knock down some of that principal.
3. Make a home improvement.
If you’re a homeowner, that roof over your head is probably the most valuable asset you own. You can increase its value by repairing an existing issue or making improvements to prevent any problems later on.
4. Save for retirement.
The chaos associated with monthly expenses could distract you from saving for retirement. Unless you want to work forever, put some of your refund into an investment account with tax advantages, such as an IRA.
Once there, you can let your money work for you instead of the other way around.
5. Put it in a savings account.
If you’d like to buy a new home or car in the future, there’s no better time than now to start saving up for it.
Open up a savings account for that particular purchase. Then make the first deposit part of your tax refund.
Over time, you can set up automatic transfers to build the account and turn your dream into a reality.
Regardless of what you use the savings account for, its most significant benefit is that it will get you into the habit of stashing money and not instantly spending it.
6. Reward yourself.
You didn’t think this entire list was going to be so lacking in fun, did you?
Some experts suggest that rewarding yourself with some of your tax refund is a smart money move. It can relieve some stress and act as a pat on the back for putting other parts of your refund towards the emergency fund, debt, etc.
How much of your refund should you use as a reward? Keep it at 25 percent tops.