Six Tips for Using Yours Wisely
Tax season is upon us. For many, this could mean you will receive a significant refund upon filing your tax return. According to IRS data, there were 115.6 million tax refunds processed in 2019, with an average refund of $2,800. For some, this could be the biggest single check you receive all year! Before that money burns a hole in your pocket, check out these six tips for using your tax refund wisely:
- Pay Down Debt
Put yourself one stop closer to financial freedom by using your tax refund to pay down debt. Can’t decide which balance to pay down first? You could aim for the account with the smallest balance first or the account with the highest interest rate. There is no right or wrong answer, so choose the option that will have the biggest impact on your wallet. Just be sure to keep your spending in check so you don’t incur any more unnecessary debt in the future.
- Save It
We recommend that every household have a savings account with a balance equivalent to at least three to six months of living expenses. That way you can cover any unexpected expenses that come your way, such as medical bills or a job loss. If your savings account has room to grow, deposit all or at least a portion of your refund into it. Your future self will thank you.
- Invest It
If your emergency savings balance is up to par, consider investing your refund in a retirement savings account. Examples include a traditional IRA, Roth IRA and Simple IRA.* Again, your future self will thank you.
- Donate It
Put your refund to good use by donating all or part of it to your favorite nonprofit organization. Not only will you be helping others in your community, but you will also gain a sense of pride that will last much longer than if you spent your refund on a material item.
- Put it Toward a Home Improvement/Maintenance Project
Your home is one of your largest assets. Therefore, making necessary home improvements are often a must if you want your home to maintain or increase its value. Use your tax refund to help cover necessary home improvement expenses such as a new roof, AC unit or windows. You could even use it to improve its curb appeal by applying a new coat of paint, sprucing up landscaping or mending that fence, just to name a few.
- Take a Vacation
Life is all about quality time spent with our friends and family. While spending a portion of your refund on a vacation won’t positively impact your financial balance sheet, it will improve your quality of life. It’s all about balance. Just be sure to set a vacation budget and stick with it. Following these simple tips will help you plan a vacation without breaking the bank. The last thing you want to do is come back from a relaxing trip to the beach drowning in debt.