Many people use their tax refund as a cash windfall. This is their opportunity to buy the large purchases they’ve been putting off. This includes televisions, washers and dryers, and some expensive clothes and accessories. If you want to do something different with your next refund, take a look at these tips.
Invest
In A Solid Stock Portfolio That Will Offer You Growth Potential
If you’re looking for long-term growth potential, investing in a solid stock portfolio is a smart move. You can start by contributing to a 401k or IRA account. If you don’t have either of these accounts, consider opening one up and contributing to it regularly. Doing this will help ensure that you’re prepared for retirement.
Save
For A Down Payment On A House Or Condo
If you’re hoping to purchase a home or condo in the near future, saving your tax refund for a down payment is a great idea. This down payment will help you secure financing and avoid paying private mortgage insurance. Aim to save at least 20 percent of the purchase price so that you’re not house poor. If you get a large tax refund, this can be done in a couple of years.
High Yield Savings Account or CD
Save your money by stashing it in a high-yield savings account or CD. This is a great way to earn some extra interest from your money. Just be sure to shop around for the best rates. Once you find a good rate, open up an account and deposit your tax refund into it.
Incidentally, saving isn’t just something you do when you get a windfall. Saving consistently over time is a great way to help raise money for a down payment or a high yield savings account. Some ways to do this are getting a portion of your paycheck automatically sent to your savings account or by religious using cash back apps, such as Dollar Dig or Swagbucks.
Spend
Pay Down High-Interest Debt
If you have high-interest debt, such as credit card debt, paying it down should be a priority. Not only will this save you money on interest, but it will also help improve your credit score. You can use your tax refund to make a large payment towards your debt so that you can get it paid off sooner.
Much Needed Home Repairs
If your home is in need of repairs or upgrades, this is a great use of your tax refund — whether it’s replacing your windows or roof, or simply upgrading your air conditioner for better energy efficiency. Your income tax may be enough to get many of these completed without charging your credit cards or depleting your emergency fund.
No matter what you decide to do with your tax refund, make sure that you’re doing something that will benefit you in the long run. These are just a few ideas to get you started. Talk to financial advisors if you need help coming up with a plan for your money. They can offer valuable insights and guidance so that you can make the most of your tax refund.
What are some other smart ways to use your tax refund? Share your ideas in the comments below!
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Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
