Saving money is a bit like eating healthy, you know you should eat your veggies but it’s hard to resist indulging in something a bit more fun. Like making healthy choices, a tax refund can present the opportunity to splurge but, more importantly, it’s a chance to put yourself in a better financial position in the future.
If you’re getting a refund back from the IRS, here are some ideas on how to use it to your long-term benefit.
Boost or replenish your emergency fund. Having an emergency fund to cover basic living expenses keeps financial plans and retirement funds secure. If you don’t have at least three months of full living expenses set aside, consider using your tax refund to get you closer to that goal.
Pay down high-interest debt. If you have credit card debt, consider using your tax refund to pay down your balance to accelerate your debt repayment. Then, consider using any leftover money to invest in an interest-earning account (rather than one that charges you interest)!
Fund your retirement. Use your refund to boost your retirement account! The more time your money has to grow, the longer you can take advantage of the power of compound interest.
Invest in your career. If there’s a course you’ve wanted to take to get your career to the next level, consider putting your tax refund toward tuition. Or, maybe you have a hobby you’ve always wanted to turn into a side business. Consider using the money to build up the inventory you need to get started.
Prepay your mortgage. Making extra mortgage payments now will lower your future financial obligation to the bank. Paying more earlier decreases the amount of interest you pay over the life of the loan.
Update your home. Putting money toward home improvements is a smart investment. By investing in new windows and appliances you’ll not only save money on utility bills, but you’ll also make your home more valuable when it’s time to sell.
Buy life insurance. If purchasing life insurance has always been on the back burner, a tax refund might be just what you need to enroll. A term life insurance policy is a cost-effective option to potentially protect your loved ones should something unexpected happen.
Support a charity. If you feel the need to give back, consider donating a portion or all of your tax refund to a charity, and lower your taxable income in the process.
How you spend your money will ultimately depend upon your specific financial situation. We want you to get the biggest bang for your tax refund buck. If you have any questions regarding what to do with your tax refund, we’re here to help!