With tax season in full swing, you may be excited about the possibility of receiving a sizable tax refund. The typical refund from the IRS is issued in less than 21 calendar days. Even though tax season comes around every year, you may find yourself wondering what something productive is that you could do with your refund. Deciding on the best use for your tax refund depends on your financial situation and your future goals. Here are a few ways to use your tax refund wisely.
Build Up an Emergency Fund
If you don't have one already, starting an emergency savings with your tax refund would be beneficial. Whether it’s a car accident, job loss, or unexpected medical bill, financial emergencies can happen to anyone at any time. Having three to six months of savings will help be better prepared when it comes to unexpected costs. Open a Money Market Account to see your investment grow. Just $1,000 to begin earning interest with unlimited withdrawals.
Save It for A Rainy Day
If you set aside at least a portion of your tax refund in a savings account, you will be on your way to building up a fund for unexpected purchases and activities in the future. Whether that’s a new appliance, a family trip, or a celebratory dinner out, a rainy-day fund can help you finance spur-of-the-moment expenses without overspending or dipping into your monthly budget. Let your money build for 12 or 24 months so see a return on your investment with one of our Starter Certificates. You only need $25 to open and can add more money to it as you want!
Boost Your Retirement Fund
Whether you have an employer-provided 401(k) plan, an individual retirement account (IRA), or both, contributing your tax refund in part or in full to a retirement fund can help boost your overall savings. Need to start a retirement account? Check out our Traditional and Roth IRA options.
Make A Payment on Your Debt
If you have multiple debts, consider applying your refund to those with the highest interest first. Paying down credit card debt ahead of other loans as a way to spend your tax refund, could also improve your credit score.
Prepay Your Mortgage
Making extra payments on your mortgage can be a great way to save money in the long run. Since so much of your payment on a long-term note goes to pay off the interest, even an extra payment or two to reduce the principal, can have an exponential effect over the life of the loan.
Make Home Improvements
Spending some of that refund around the house can go a long way. Replacing old windows can improve the efficiency of your air conditioning and reduce your electric bill. Old appliances can be replaced by models that use less energy. Small remodeling projects can improve the functionality of your house now and make it more attractive for when you decide to sell.
Invest In Your Family
Sometimes the best thing we can provide our loved ones is time spent together doing something fun. Research shows that experiential purchases contribute more to our overall happiness than material purchases. There's a plethora of fun experiences to choose from, such as visiting a zoo or a museum, attending a play or a concert, or even using that tax money to start a vacation fund.
Invest In Yourself
Spending money on yourself is important, if it helps to better your overall well-being. Using your refund to pay for a year’s gym membership or enroll in yoga classes, are good ways to improve your health. If you struggle with back issues or poor sleep, a new mattress could be a good investment. By committing energy and financial resources to your own personal development, you can learn new skills, pursue new interests, or even build your career.
While it’s tempting to go on a shopping spree, that can certainly make your tax refund short lived. Consider your options for saving, paying down debt, and spending the money on things or experiences that could provide a real benefit. Then make a plan and commit, so that when your refund arrives, you’ll know exactly how to put it to work.
Ready to put your tax refund to good use? Consider one of our high yield savings, certificates, or retirement options.
Sources & Enhanced by Credit Union of Denver