5 Smart Ways to Put Your Tax Refund to Work
Many Americans are expected to receive a refund on their tax returns. You have many choices when it comes to how you can use the money you receive, but most experts will tell you to resist the temptation to splurge—and we agree. Instead, consider using your refund for something of longer-term value.
1. Establish an Emergency Fund
If you don’t already have an emergency savings fund, now is the perfect time to start. And if you already do have money set aside, there’s a good chance your account could use a top off. Most experts recommend that you set aside enough money to cover three to six months of living expenses for use in case of emergency. If you don’t already have this, consider using your tax refund to give yourself a cushion.
2. Pay Off Your Credit Card Balance
If your credit card has a balance, consider using your tax refund to pay it down as much as you can. Reducing your credit card debt helps you improve your credit score and reduces financial stress; it can also save you hundreds or even thousands of dollars in interest. If your refund doesn’t cover the entire outstanding balance on your card, consider rolling your remaining debt to a credit card with a lower interest rate, or look for a debt consolidation loan. Both are available through Global.
3. Make an Extra Loan or Mortgage Payment
If you have a mortgage, or auto and student loans, consider using your tax refund to make an extra payment. When you pay extra on a loan, the additional amount you pay reduces the amount you owe, which lowers the amount of interest you will pay over time. It will also shorten the life of your loan, saving hundreds or thousands of dollars in the long run. With a mortgage, this also helps you build equity in your home faster. Before doing this, check with your lender to make sure your payment will go towards paying down your principal.
4. Invest for the Future
There are many ways you can invest your tax refund now to help you reach your future financial goals. Use it to build retirement savings by adding to your traditional or Roth IRA, where your money can grow tax-deferred. If you don’t have proper insurance in place to protect you and your family consider life insurance options. If you have children, consider opening a savings account for them, or invest in a college savings plan such as a 529 or a Coverdell Education Savings Account. When invested wisely, this year's tax refund could return benefits to you or your children for years to come.
5. Make Home Improvements
Smart investments at home make good financial sense, especially when the improvement protects the asset that is your home. If you have any maintenance that you’ve been putting off, now is the time to do it, using your tax refund to help pay for the work. Repair or replace your roof, invest in new windows or energy-efficient appliances, or paint the exterior to protect your siding. Even an investment in better insulation will save you money in the future.