It’s tax refund season! How are you going to be spending the pile of cash from Uncle Sam?
Of course, you can use some of your tax refund to indulge responsibly. If you’ve been wanting to buy yourself a new something special for a while or to spend on an experience you generally cannot afford, by all means, you can allow yourself to use some of your tax refund for your chosen treat. Indulging occasionally and mindfully can prevent feelings of deprivation and can help you manage your money better
However, before you go out and blow your entire refund on a sinfully expensive weekend, take a step back and try to determine the most financially responsible approach you can take with this money. Instead of spending all the funds on short-term indulgences, consider using some of them to improve your overall financial wellness. To help you get started, we’ve compiled this list of eight financially responsible ways to use your tax refund this year.
Build or boost your emergency fund
Having a well-endowed emergency fund is a crucial component to your financial health and stability. If you don’t have a fund with three to six months’ worth of living expenses set aside to cover unexpected events, work on setting one up now. Use some of your tax refund to start building your emergency fund or boost an existing one.
Pay down high-interest debt
High-interest debt can kill the best of budgets. If you’re carrying outstanding debt with high-interest charges, consider using some of your tax refund to start paying it down. Decreasing your debt amount means more of your monthly payments will go toward your principal instead of interest. Additionally, knocking off a big chunk of your debt can potentially help you move to a lower interest rate.
Invest in your education
If you’ve been looking for a way to advance your career and increase your earning potential, this may be your chance. Consider furthering your professional education by allocating some of your tax refund to career workshops, conferences, or additional certifications. Enhancing your qualifications and learning new skills can be the key to significant raises or a promotion at work, which will pay off for years to come.
Feed your savings
It’s always an opportune moment to enhance your savings, especially during tax refund season! Remember, the SRIFCU Core Savings Account currently offers an attractive 4.25% APY on the first $5,000 deposited. Utilize this advantageous rate to bolster your long-term savings and inch closer to your financial objectives. Did you know? The IRS permits you to divide your refund into three distinct accounts via direct deposit, facilitating this process. Consider allocating a portion of your refund directly into a savings account even before it reaches your hands.
Prepay your mortgage
Making an extra mortgage payment or two can be a fabulous way to free up some money for the long term. Reducing the principal can have an exponential effect on your loan since so much of it goes toward interest over the life of the loan.
Make home improvements
Spending some, or even all, of your tax refund on improvements that increase the value of your home is an investment in your equity. In particular, kitchen facelifts and home expansions tend to offer a larger return on investment when the home is sold.
Another kind of home improvement to consider at this time is an energy enhancement. For example, you can swap out older appliances for newer and more energy-efficient models or even choose to have solar panels installed on your roof. Energy improvements will save you money each and every month.
Start or contribute to a college fund
If you have children or plan to start a family in the future, consider allocating a portion of your tax refund to a college savings fund. A 529 savings plan, which is a tax-advantaged account specifically designed for education expenses, can help alleviate the financial burden of college in the future. Contributions to a 529 plan may be deductible on your state taxes, and earnings are tax-free when used for qualified education expenses.
Invest in your retirement
If you qualify, contemplate directing a portion of your tax refund toward your employer-sponsored 401(k) or an Individual Retirement Account (IRA). These contributions not only offer potential tax advantages but also leverage the power of compounding, enabling your money to multiply over time. Initiating your retirement investments early can significantly enhance your potential accumulation for the golden years ahead. Additionally, keep in mind that SRIFCU IRA CDs offer attractive rates, with APYs reaching as high as 4.75%, further boosting your savings potential.
There are so many things you can do with your tax refund that can benefit your financial health. Use our list for some fabulous ideas or come up with your own financially responsible ways to use your tax refund.
APY= Annual Percentage Rate
