Millions of taxpayers receive tax refunds each year and debate ways to use the extra cash. Impulsive purchases make money disappear as quickly as it hit your bank account. Being wise with your refund can benefit not only your wallet but also your peace of mind. Before you fill up your cart, think about how you could enhance your financial security in the long run.
Here are some of the wisest ways to save it or spend it:
- Break the Debt Chain. Use your tax refund to pay it off – or at least put a dent in it. Start by paying off your high-interest loans. Paying off debt can be a long process, so it’s vital to figure out your most efficient course of action to save you as much time and money as possible.
- Retirement Roadmap. Saving for retirement is challenging when you need your income for expenses in the present. It is highly recommended to put your tax refund toward retirement savings if you are able. Read Tips on Planning for Retirement for information on how much you should be saving to retire.
- Don’t Neglect Your Other Funds. That college fund and emergency fund are important too! Like retirement, college costs and emergency expenses may not be an issue right now, but they can hit hard in the future if you’re not prepared.
- Invest in your fixer-upper. Home improvements will make your home more enjoyable, increase its value, and reduce taxes when it’s sold. Make sure you invest in capital improvements, such as building a deck, installing a hot water heater, putting in a swimming pool, or building an addition – anything that adds value or lengthens the useful life of a home. Remember to keep track of improvement costs. They will come in handy when it’s time to sell.
- Spend on Something You Need. A lot of expenses get pushed to the side – like the car trouble you keep avoiding or that dental work you were supposed to get a year ago. Use your tax refund to remove one of your financial burdens.
The information in this article is current through tax year 2019.