About eight in 10 U.S. tax filers receive a tax refund every year, with the average amount paid over the past few years equaling around $2,800; according to recent IRS data. That’s a lot of money to some people, and it can be tempting to go on a shopping spree with that hard earned cash. However, below are some practical and smart ways to put it to good use!
1. Pay Off Your Credit Card Debt
Paying off debt is always a good idea. If you receive a refund, instead of buying an expensive item, chip away your credit card bill, which will feel just as satisfying!
2. Rebuild Your Emergency Fund
You should have about 3-6 months of living expenses saved in case you need cash for emergencies. For a single individual, 6 months worth of savings may be more appropriate then a couple who each could save 3 months of living expenses. Use your refund to cushion your emergency fund.
3. Put it Towards Your Retirement Savings
Investing in your future is always a good idea. So when your return comes through, put it towards your retirement savings and watch it grow over time. That is a good investment!
4. Contribute to a 529 account
With the ever rising costs of college, another good idea is to start or add to a 529 savings account for your child. As with retirement savings, the earlier you start the better your savings will look in years to come.
5. Save for an Upcoming Vacation
Too many people put their family vacations on a credit card, sky-rocketing their bills in months to come. Instead of accruing more debt, pay for the vacation in advance. That way, post vacation stress won’t hit from overwhelming bills; Just stress from getting back to day-to-day life.
6. Tackle a Home Project
If you have an outdated home, or projects that are in desperate need of your attention, fixing those problems is another good option to using your tax refund. Also, with spring around the corner, it’s the perfect time to do a little spring cleaning.
-Written by Annie Albrecht, Worley Erhart-Graves Financial Advisors