If you are receiving a tax refund this tax season, you may be wondering what to do with it. While it might be nice to buy a new large screen TV or go on a much-needed vacation, there are smarter ways to utilize your tax return.
It may not be as fun or exciting a buying something new, but the following are some great ways to use your tax return.
1.) Start or add to your emergency fund – Depending on whom you talk to, you should have at least enough money in your emergency fund to cover three months of bills. Some will say six months is better. If you’re not there yet or haven’t even started, using your tax return to start or contribute to your emergency fund is a great option.
2.) Pay down your debt – This may be one of the best ways to use your new found money. Getting your debt paid down will help your credit score and give you some breathing room in your monthly budget. In the long run, it will also give you more money each month to invest or put into your savings account.
3.) Add to your IRA – Chances are you have some sort of retirement fund through work. If so, you can add your tax refund to it and give it a nice little boost. If you do that each year, over time, you will see a great return on your money.
4.) Invest in your home – Another way to use your tax refund is by making some home improvements. If you have owned your home for a few years, then most likely there is something that needs updating. Depending on what you decide to improve, it can also add value to your home.
5.) Consider a new appliance for your home – If you have a large appliance such as a washer or dryer or refrigerator that isn’t working as well as it could, you might want to use this money to go ahead and replace it. A new energy efficient appliance will save you money each and every month on your utility bills. In the end, it will pay for itself.
6.) Learn a new skill – If there is something you have always wanted to learn or a class you wanted to take, do it now. By investing in yourself, you may find a new hobby or even a new career. Updating your skills can also pay off in your current job.
7.) Start a savings account for a specific purpose – If you have a big expense on the horizon such as buying a new home or car, then you might want to consider opening a separate savings account to save money for just that. By having the money in a separate account, you will be less likely to spend it, and more motivated to add to it to reach your goal.
8.) Buy additional insurance – While it might not sound very exciting, buying additional liability insurance or even flood insurance, will give you peace of mind for all of the what if’s that could pop up down the line.
There are many smart ways to use your tax refund. What you do with it is up to you, but before you run out to some big box store for the newest gadget, give it some thought and see if you can find a way to use it that will benefit you now and down the road.
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