Getting a tax refund is exciting! Many of us think about how we can spend the money on things like a vacation, clothes or eating out. But before you get swept up in the excitement of your refund, stop and think about what you SHOULD do with your tax refund versus what you WANT to do. In this article we will discuss 7 ways to spend your tax refund.
If you are getting a refund from the IRS, here are 7 ways to put your refund to good use.
Create an emergency fund.
This isn’t exciting or immediately rewarding but it is important. Take a portion of your refund and open a savings account to cover unexpected expenses like new tires, AC repairs, or out-of-pocket health care costs. This will give you some breathing room when the unexpected happens.
Pay off debt.
Again, not super exciting but still a great idea. If you are carrying a credit card balance, it doesn’t make sense to put your refund into a savings account earning 1% interest and maintain a balance on a credit card where you are paying 18% interest. Stop making minimum payments and pay off the balance with your refund.
Contribute to long-term goals.
Maybe you’re saving to buy a home, building a college fund, or planning for early retirement. Take the opportunity to make a lump-sum contribution to your future!
Pre-pay your mortgage.
Making extra mortgage payments can help you save money over the long run. Reducing the principal balance on your mortgage can make a big difference in the interest you will pay throughout the loan.
Think about improvements that you can make to make your home more energy-efficient or improve the resale value. Also, think about repairs on the horizon such as a new roof or AC unit and plan ahead.
Get life insurance.
Life insurance is especially important for people who are married with children. A term life policy can be an inexpensive way to provide added protection for your loved ones. The younger you are, the lower the cost!
The occasional splurge can help you stay positive and reach your long-term financial goals. But set a budget and don’t go over your limit. Think about an experience you can enjoy such as going to a concert or eating at a fancy restaurant. The goal is to keep it reasonable.
By following these suggestions for ways to spend your tax refund you will be sure get the most out of Uncle Sam’s refund check.