These Are the Smartest Ways to Use Your Tax Refund
Is there any better excuse to treat yourself than an unexpected influx of cash? Your tax refund can be a great opportunity to buy something you’ve been eyeing for months, but before you blow your entire refund shopping, ask yourself if there’s a better use for your money. Here are seven smart ways to spend your tax refund that won’t leave you with buyer’s remorse.
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Make a Smart Money Move
Pay off debt
It doesn’t take long for credit card debt to completely snowball out of control. Instead of making minimum payments, use your tax refund to pay down credit card debt. If you don’t have credit card debt, apply your refund toward the debt with the highest interest rate, whether that’s student loans, a car loan, or medical debt.
Boost your emergency fund
Everyone should have an emergency fund set aside for a rainy day, even when they’re in debt. Without emergency savings, you’ll end up in more debt the first time you encounter an unexpected car repair, home repair, or hospital bill.
Buy life insurance
If you’ve been avoiding life insurance because you think it’s too expensive, consider that a $2,000 tax refund could pay for more than five years of life insurance premiums. That’ll buy a $250,000 term policy for a healthy 30-something — plenty for most people’s needs, although it’s always smart to get a ballpark figure of your specific insurance needs before buying a policy. Not sure why you need life insurance? Along with a will, life insurance is considered one of the main ways parents can protect their kids if the worst happens.
Invest in Yourself
Take a class
Whether you’re going for a promotion or looking to change careers, continuing your education is a great way to show employers you’ve got what it takes to succeed. Look into online courses and advanced degree programs from universities, as well as workshops and advanced certifications offered through professional organizations.
Work Toward a Goal
Save for a down payment
Are you tired of renting? Before you can stop throwing money away on rent, you need to save up for the costs of buying a home. Cut back on spending or pick up a side job for extra funds, then stash your savings in a high-yield savings account to make your money work for you. According to Redfin, you’ll need at least 1 to 3 percent of the home’s purchase price for the down payment, though you may need to put down as much as 20 percent.
Fund your IRA
Retirement is the ultimate financial goal, and it’s never too soon to get started. If you’re already taking advantage of your employer’s 401(k) match or you don’t have access to an employer-sponsored retirement plan, open an IRA. You can contribute up to $6,000 a year to an IRA, and depending on the type of IRA you choose, you’ll enjoy tax-deferred or tax-free growth.
Start a vacation fund
Good money habits help you achieve big goals like buying a home and retiring, but they’re also helpful when it comes to fun goals like planning a vacation. Instead of getting stuck on another staycation because you can’t afford to travel, set aside some of your tax refund for a vacation fund. By saving up, you can take the vacation you deserve without stressing over money.
There’s nothing wrong with treating yourself once in a while, but before you decide to splurge on all things you want, make sure you’re taking care of what you need. While it might not be as exciting as a shopping spree, using your tax refund for one of these smart money moves will set your year off to a great financial start.