While folks do not look forward to filing their taxes each year, they do look forward to receiving a tax refund. Before planning a big vacation or going on a shopping spree, keep in mind that your tax refund can be a great opportunity to make progress on your financial goals. Here are some tips for how you can make the most of your tax refund!
Pay Off Debt
Do you still have student loan debt? Are you making credit card payments? Your tax refund could be your golden ticket to paying down your balance and avoid overspending on interest. Your refund could either pay off your debt balance or make enough of an impact that you are able to pay off the rest relatively quickly. Paying off your debt can also help build your credit score by shrinking your credit utilization.
Add to Your Emergency Savings Fund
An emergency savings fund is a critical aspect of planning for your financial future. This type of fund gives you a financial cushion should life take an unexpected turn that requires instant access to larger sums of money. Consider using some (or all) of your tax refund to build your emergency savings fund — or replenish it if you recently dipped into it. Ideally, you want to have enough saved in the account to keep you financially afloat for three to six months.
Make Home Improvements
A tax refund could provide the cash you need to purchase a new appliance for your house or even start a larger home renovation project. Either way, investing in upgrades or repairs for your home will increase your home’s value.
Add to College Fund
According to a recent survey by the financial services firm Edward Jones, only 8% of respondents said they planned to invest their tax refunds. With the average refund exceeding $3,000, it may be tempting to spend it, however, you can make a significant impact on your college savings by saving some, or all, of your refund in a 529 college savings account for your children.
Simply Save It
Are you hoping to buy a house down the road? Have you always wanted to visit Paris? Simply saving your refund can help you inch closer to your life goals.