According to the IRS, in 2018 the average tax refund was $2,825. Many people view their refund as a windfall and spend it quickly without giving it much thought. However, financial experts recommend examining your financial situation carefully before deciding what to do with your tax refund.
If you are one of the tens of millions of Americans expecting a tax refund this year, here are some of the wisest ways to spend your extra dollars, according to financial experts.
If you are expecting a tax refund this year, here are some of the wisest ways to spend your extra dollars, according to financial experts.
5 Smart Ways to Spend Your Tax Refund
1. Pay off your credit cards
Reducing revolving, high-interest credit card debt is one of the smartest things you can do with your tax refund. Even if you can’t pay off your entire balance, you can still cut your debt down. You’ll save on finance charges and get out of debt faster. Just be sure that once you pay off or pay down your credit card debt, you keep your credit card use in check and use credit only for absolute emergencies.
Reducing revolving, high-interest credit card debt is one of the smartest things you can do with your tax refund.
2. Take care of maintenance and repair projects
If you’ve been delaying home or auto repairs or maintenance tasks, now is a great time to get them done. Your home and car are probably two of your largest investments. It is essential to keep them in optimal condition for safety and efficiency, and to avoid much costlier repairs or replacements in the future. A little investment now can mean peace of mind for you and your family and save you a lot of money and hassles in the long run.
3. Feed your emergency fund
A job loss, health issue, or other emergency can be both emotionally and financially difficult. A recent LendingTree survey found that sixty percent of millennials do not have enough money in savings to cover a $1,000 emergency expense. An emergency savings fund can ease at least some of your stress by providing you with enough money to cover costs so you don’t have to turn to your credit cards or risk losing your home or car. Many financial experts recommend having an easily-accessible emergency savings account that covers six to eight months of living expenses.
4. Add to a college savings or retirement account
If you have no credit card debt and already have a sizable emergency fund, you are in a favorable position to consider building up a college savings account or your retirement fund. A tax refund can give your savings a great boost, whether you invest it in a 529 plan, Roth IRA, traditional IRA, or other type of retirement or education savings account.
5. Invest in Your Health
Use your tax refund to pay for medical procedures or dental work you may have been putting off. Stay fit and sign up for a gym membership. Make health your priority!
Are you still working on your tax return? Don’t forget about the free and discounted programs and services available for the military! You don’t have to tackle this task alone.
The information provided in this blog post is for informational purposes only. It should not be considered legal or financial advice. You should consult with a financial professional to determine what may be best for your individual needs.