Tax season has arrived and more than half of all Americans expect to receive a refund. If you are one of these people, you may be thinking about how you will spend the refund.
No matter how tempting it is to deplete these funds on a new television or new clothes, saving or investing the money is the optimal choice.
Here’s 5 smart ways you can use your tax refund.
1. Start an Emergency Savings
According to a Google Consumer survey, 62% of Americans have less than $1,000 in a savings account and more than 20% don’t have a savings at all. If you receive a tax return, use it to start an emergency savings account at Communication Federal Credit Union.
Having an emergency savings account is essential to staying out of debt and living a financially sustainable lifestyle.
2. Pay Off Debt
Having debt makes you less happy. Studies have shown that being debt free offers a host of psychological benefits ranging from less stress to emotional relief to better health. Drowning in debt often forces you to put your life on hold.
Use your tax return to pay down or pay off your debt. No matter how much you are able to pay off, you can use the extra money each month to pay off more debt or, if you’re debt free, start saving for the vacation you’ve always wanted.
3. Start a college fund
College is expensive and tuition is only increasing. It’s estimated that tuition increases an average of 7% per year, making it on pace to cost a little less than $40,000 per year in 2027.
While you can certainly save money if your children attend a community college before transferring to a university, it’s still vital that you start saving for college as soon as possible.
Putting money you get back on your tax return is a good start. Open up a special savings account at Communication Federal Credit Union and place the money you get back on your tax return in this account every year. If you have more than one child, divide it up evenly. It may not pay for the entire education, but it could knock out a chunk of it.
4. Save for a new vehicle
Whether it’s for yourself or for your child, eventually you will need to buy a new vehicle. Your tax return is an excellent way to save up a good down payment for your next vehicle purchase.
Having a down payment provides many benefits including saving hundreds in interest payments and lowering your monthly payment.
5. Add to your retirement
Hopefully, you are contributing money to your company’s 401K plan on a regular basis and, if they offer it, taking advantage of any match program they offer. However, you can also increase your retirement savings by using your tax refund.
Talk to your financial adviser for a list of options on how you can use your tax refund for your retirement.
Instead of frittering your tax return away on a shopping spree or a vacation, use the money for any of the aforementioned suggestions. Paying down debt or saving the money will actually assist you in being able to afford that shopping spree at a later date.
How do you plan on using your tax refund? Let us know in the comments below.