Put Your Tax Refund To Good Use (And Maybe Even Make More Money With It)
The figures have been added up. The forms have been filled out. The paperwork has been filed. And ka-ching: You find yourself getting a refund somewhere in the $2,800 range (that’s the average income tax refund these days). What will you do with this unexpected windfall? You can spend it or save it or let loose with a do-as-you please splurge. But maybe you’re looking to do something smart and strategic that might even make you some extra money. Read on for four ways to make good use of your refund.
1. Boost Retirement Savings
Consider having the IRS direct-deposit your refund into an IRA. Similar to a 401(k), you won’t be required to pay taxes on the money you contribute. When your tax refund is out of sight (and out of mind) you’ll be less likely to spend it on an impulse buy that you might regret later.
2. Pay A Month Ahead On Your Mortgage Or Rent
Housing in the U.S. is becoming more and more expensive; low-income people feel the squeeze the most, but middle-income families, many of whom live paycheck to paycheck, are also experiencing the pinch. Why not use your tax refund to get ahead a bit by making an extra month’s mortgage or rent payment? Or you can stash it away for that purpose just in case times get tough down the road. Your refund can help give you peace of mind when it comes to keeping a roof over your head.
3. Pay A High-interest Debt
That ‘minimum payment due’ on your credit card bill could mean you’re barely putting a dent in your balance. High interest rates often eat up a good portion of your payment, which means paying off that bill could take many months — even years. Use your tax refund to pay down your highest-interest debt; prioritizing debts with the highest interest rates can help you save a significant amount of interest over the long term.
4. Get An Emergency Fund Going
You didn’t expect to break your leg on your Colorado ski vacation. Or get laid off just before the holiday season. Or have the engine go on the car you love but that has seen one too many road trips. Life happens, as do emergencies. Having an emergency fund can help prevent you from sinking into debt. Start an emergency fund with your tax refund and you’ll be better prepared to handle life’s unexpected twists and turns, without turning to others to help bail you out of a difficult financial situation.