It’s tax refund season! How are you going to be spending the pile of cash that Uncle Sam’s giving back?
Before you blow your refund on an expensive weekend, take a step back and try to determine the best approach you can take with this money. To help you get started, we have compiled this list of financially responsible ways to use your tax refund this year.
Build or boost your emergency fund.
Having a strong emergency fund is a crucial part of your financial health and stability. If you do not have a fund with three to six months’ worth of living expenses set aside to cover unexpected events, work on setting up one now. Use part of your tax refund to start building your emergency fund or boost an existing one.
Pay down high-interest debt.
High-interest debt can kill the best of budgets. If you are carrying outstanding debt with high interest, consider using some of your tax refund to pay it down.
Invest in your education.
If you have been looking for a way to advance your career and increase your earning potential, this may be your chance. Consider furthering your professional education by allocating some of your tax refund to career workshops, conferences, or additional certifications.
Feed your savings.
It is always a good time to boost your savings, and tax refund season is no exception! Set aside a portion of your refund for your long-term savings to help you get closer to your financial goals.
Prepay your mortgage.
Making an extra mortgage payment or two can be a fantastic way to free up money for the long term. Reducing the principal can have an exponential effect on your loan since so much of it goes towards interest over the life of the loan.
Make home improvements.
Spending some or even all, your tax refund on improvements that increase the value of your home is an investment in your equity. Similarly, using some of these funds to increase your home’s energy efficiency can pay off for years to come.
Start or contribute to a college fund.
If you have children or plan to start a family in the future, consider allocating a portion of your tax refund to fund an educational savings account. A Coverdell Education Savings Account (ESA) helps you save money to pay for your child’s current and future education expenses, such as tuition, fees, books, and supplies. Unlike state 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses, in addition to post-secondary expenses.
Invest in your retirement.
If eligible, consider allocating a portion of your tax refund to your employer-sponsored 401(k) or an IRA. The earlier you start investing in retirement, the more you can potentially accumulate for your golden years.