Tax season is here and if you’re one of the lucky ones, you’ve got a refund check coming your way. While it may be tempting to treat yourself to a much-needed vacation or shopping spree with the extra money in your pocket, utilizing your tax return to help you get ahead or catch up on your finances may be a better decision for you and your wallet.
If you do decide to take a more financially friendly route, we’ve got some tips for you below to help make the best use of your refund.
1. Pay Down Debt
Our #1 tip for those wanting to utilize their tax refund for financial gain would be to pay down any debt you already have. If you’ve got multiple areas of debt, start with focusing on the debt that is causing you the most financial strain, like credit cards or student loans with high interest rates. Even if you can’t pay your balance in full, making a large payment will feel great and help you make a leap toward a debt-free life.
2. Build your Savings
If you don’t already have a savings account, now is a great time to begin building one by using your refund money as a solid foundation. If you do already have a savings account (or two) with a specific purpose in mind such as saving to buy a home, a car, or for your dream vacation, using your tax refund to make a substantial contribution toward that goal is always a good idea.
3. Invest in Homeownership
Are you currently saving up to buy your first home? If so, why not utilize your tax refund to get ahead on your down payment? If you’ve already got your down payment covered, you can always put the money towards closing costs or for furnishing your new place. Already a homeowner? Why not look for ways to increase your home’s value like using the extra cash to complete a home improvement project, which could raise the resale value of your home, or upgrade an old appliance, which can be difficult to fit into your budget.
4. Create or Add to Your “Rainy Day” Fund
A “rainy day” fund is a reserved amount of money intentionally created and set aside for unplanned emergencies, life events, or disturbances in your regular income. If you do not already have one of these emergency funds set aside, using your tax refund to create one is a great idea — many Americans do not have a sufficient savings account accessible in case of a financial emergency. While it may not be the most exciting place to invest your money, having this designated account set aside as a cushion can help save you from financial distress caused by an unexpected life event in the future.
5. Take the Vacation
Hey, as long as you are not in a state of financial distress, there’s no harm in taking that vacation! With as many travel saving sites as there are out there today, chances are, you’ll be able to find a great deal and enjoy the reward of a well-deserved getaway after a year of hard work.