As tax season draws to a close, you may find yourself the recipient of a refund. It is easy to dream about all the fun ways you can spend this sudden influx of cash, but it is important to spend or save your refund wisely for the future. While setting aside a small amount for a fun outing or other special item is fine, check out these tips for smart ideas to put most of your refund to good use.
Pay down your debts. Putting some or all of your refund toward your credit card balance, mortgage, student loan or car payment can pay off big in the long run. Paying off these debts can help you save money over time as you will accrue less interest. Determine which debt has the highest interest rate, and put your tax refund toward your next payment. For more tips on how to improve your credit, click here!
Save it for a rainy day. Financial situations can change quickly – loss of income, a medical emergency, or a major home repair can turn into a financial disaster if you are not prepared. Yet most Americans do not have savings to fall back on if this happens. Experts recommend saving three months’ salary in case of a crisis or emergency. It can seem daunting to achieve this goal, but starting with your tax refund is a great way to begin building this savings and provide more financial security for the future.
Add it to your kids’ college fund. Many people choose to set up 529 savings accounts to help their children pay for college in the future. The earlier you start, the more interest you can accrue, but it is never too late. If you already have one, consider putting some or all of your refund toward this account. If you don’t, this could be a great opportunity to start one. Learn more about college savings plans here.
Contribute to your retirement account. No matter your age, preparing for retirement is critical to having a financially secure future where you no longer have to work. The earlier you start to plan and save toward your retirement, the better. While you may not be able to add your tax refund to your 401(k), there are other options. Individual retirement accounts, or IRAs, allow you to save and invest money for retirement on your own. Learn more about IRAs here.
Save up for a big purchase. Is a new car, appliance or home repair on the horizon? Even if you have to pay for a portion of the item with a credit card or loan, setting aside specific savings for the item beforehand can help keep the interest down, allowing you to more quickly and easily pay off the purchase.
Invest in yourself. Is there a class, workshop, webinar or certification that could help you to advance your career and possibly earn you more money? If so, it may be in your interest to sign up while you have the funds to pay for it.
Hire a financial planner. Financial planners can help you reach your savings and retirement goals as well as help you achieve financial stability. Learn more about what to look for when choosing a financial planner here.
While it may not be as exciting to allocate your tax refund to retirement savings or a new dishwasher, your wallet will thank you in the long run as this is a sound investment in your financial future.