For many people, tax season means getting a tax refund. While it may be tempting to spend that money on the latest tech gadget or new shoes, this money can be used as a nest egg toward some of your long-term financial goals. Here are six ideas for how you could use your tax refund.
1. Start an Emergency Fund
Many financial Experts recommend that you have at least six months’ worth of living expenses saved up in case of unemployment, unexpected medical expenses, or other emergencies. This fund should be kept in a separate savings account to help you avoid the temptation of accessing it.
2. Open a Certificate of Deposit (CD)
A CD is a great way to start working toward your savings goals. Start small with an initial deposit and then watch your savings grow over the length of your term. The longer the term you set, the higher your interest rate will be.
3. Pay Off Debts
If you’re dealing with credit card debt, student loans, or medical bills, your tax return is a great way to start paying those off. Always start with the highest interest-rate debts first and then work your way down. Eliminating those high interest rates early will help save you money in the long run.
4. Contribute to Retirement
If you don't have much debt and your personal accounts are looking good, consider contributing to your retirement savings. The maximum amount you can contribute may change year to year, so click HERE for the most updated information from the IRS.
5. Upgrade Your Home
Your home is probably the biggest investment you’ll make in your lifetime. Improvements can help increase its value if you ever decide to sell. If you have a home improvement project that you’ve been putting off due to finances, consider putting your tax refund toward that new bathroom or kitchen you’ve always wanted.
6. Enjoy Experiences
Studies have shown that experiences (such as a vacation or fun activity) provide more long-term happiness than material items. So, if you aren’t dealing with any major debts and your retirement fund and emergency savings are doing well, consider putting your refund toward something fun for you and your family. Just remember to keep it reasonable. A $2,000 refund may not always justify a $10,000 vacation.
