As this year’s average tax refund is more than $2,000, many of us may be finding it difficult to resist the urge to splurge. However, using the money wisely can give you a major jump start on securing a better financial future. Here are seven great ways to spend your tax refund and get the most out of your cash back from Uncle Sam.
- Invest. Do some research and invest the lump sum into the stock market where you can reap the benefits later in life, or invest in your career by putting money towards learning a new skill. You could spend money on continuing education courses, a weekend conference, or an online course to learn a new skill that will help you get that promotion you’re after.
- Start an emergency fund. In this economy, building up an emergency account is critical and a large tax refund can give you a great start. An emergency fund should eventually total between three to six months worth of your living expenses.
- Pay off high interest debt. Consider using your refund to pay down debt on your credit cards that charge the highest interest rate. Annual interest rates for credit cards and personal loans are currently averaging around 15 percent, so paying off your credit card before making other investment decisions is a smart move.
- Add to your retirement account. Using a large portion of your tax refund for retirement contributions can give you a great return on your investments. Or if you’re like almost 30 percent of working Americans, and have no money invested in retirement, take the time to consider using your entire refund to make a contribution to an IRA account. Trust us, later in life you’ll be glad you took this advice!
- Improve the value of your home. By using the refund to update your bathroom, or remodel your kitchen, you will not only improve your home’s value, but you’ll enjoy spending more time at home.
- Double up on a mortgage payment. Doubling up on a few mortgage payments now can save you months of payments later on down the road.
- Plan a vacation. It’s important to reward yourself if you’ve been responsible with your money. If you already have an emergency fund, steadily contributing to your retirement fund and have your debt under control, reward yourself with some much deserved R&R. Remember, money should be enjoyed as well as earned, saved, and invested.