If you’re one of the millions of Americans receiving a tax refund this year, you might be tempted to take a vacation or go on a shopping spree. But before you do any of these things, consider thinking a bit more strategically. Here are seven ways to spend your tax refund that could set you up for a more financially secure future.
1. Pay Down High-Interest Debt
Owing a lot of debt can be costly, not to mention a major strain in keeping up with your payments each month. Do yourself a favor and use your tax refund to make a large payment on your existing debt. It can help reduce your monthly bills, plus save yourself a substantial amount of money in interest over time.
2. Boost Your Emergency Savings
Another smart refund strategy is to create an emergency savings fund or add to it if you already have one. This can help prevent you from accumulating new debt because you have a built-in buffer for unexpected financial emergencies. The next time your car breaks down or you have a medical issue, you won’t have to charge or borrow money to take care of it. Using your tax refund for your emergency fund can take a lot of stress out of your life.
3. Contribute to Your Retirement Savings
Most Americans are dangerously underprepared for retirement. Even if you already contribute to a retirement fund, it’s good to regularly reassess how your progress is coming along. You can use your tax refund to contribute to an employer fund if you don’t already max out your annual contributions. You may also qualify for opening up either a traditional or Roth IRA. Each type is taxed at a different time, so do some research to determine which one is the best option for your current situation.
4. Make a Tax-Deductible Donation
Donating to a non-profit organization with your refund could help you prepare for next year’s tax season. In most cases, this type of donation is tax deductible. If you want to decrease your tax burden even further, especially if you’re riding the line between two different tax brackets, a donation could help you while also making a difference to your chosen charity. Consider chatting with a tax advisor if you think this tactic could help you next year.
5. Tune Up Your Major Investments
While a tax refund could easily be used for a major purchase or upgrade, don’t forget about regular maintenance of your existing property. Maybe your home’s HVAC needs some maintenance. Or perhaps your car could use a tune-up or some new tires. Oftentimes, a bit of prevention early on can be much less expensive than addressing a larger issue later on. If you don’t include these things in your regular budget, think about using your tax refund for your usual deferred maintenance.
6. Make an Extra House Payment
Using your tax refund to make an extra house payment each year can put a huge dent in your mortgage over the years. Depending on your principal and interest, you could easily save tens of thousands of dollars in interest over the life of your loan. Not only that, you could shave off a few years from your mortgage if you start making extra payments early enough.
7. Invest in Professional Credit Repair
If you have less than perfect credit, you’re automatically setting yourself up for more limited access to credit, plus more expensive credit even if you do get approved. There are certainly ways you can fix or improve your credit on your own, but there are several benefits to investing in a professional credit repair service. First, a reputable company, like Ovation Credit, has an expert staff to create the most effective credit disputes. On top of that, you can save yourself countless hours over the course of several months spent on fixing your credit errors. To make sure you get your credit repaired in an efficient and effective manner, it may be worth spending some of that tax refund on a better credit score.
Getting a tax refund is an exciting time, especially if you weren’t expecting such a large lump sum payment. Don’t rush yourself into making any spending decisions until you’ve fully thought out your short- and long-term financial goals. Think about what you need to do to help you achieve those dreams. Then think about using some of these strategies to help you get there.