Are you looking forward to a tax refund? Before you splurge on something unnecessary from your wishlist, consider this tax refund as an opportunity to do something meaningful for your finances.
1. Pay credit card debt
Many of us are carrying around high-interest credit card debt. Use your tax refund to pay down your credit card balances. If your refund doesn’t allow you to pay off your entire balance, you should apply the refund to your highest-interest credit card debt.
2. Fund that emergency fund
If you don’t already have three to six months of income stashed away in an emergency fund, consider putting your tax refund towards your emergency fund. If you don’t have an emergency fund, start one. Can’t put away three to six months worth of income? Put away what you can. Any emergency fund is better than none. Putting your refund towards your emergency fund will provide you with a peace of mind.
3. Put the money towards your retirement account
Whether it’s your 401 (k) plan, IRAs, or HSAs, putting your tax refund into a retirement account goes far in boosting your retirement security.
4. Save for an upcoming major purchase
Planning to buy a new car soon? Maybe you’re looking at buying a home. Whatever major purchase you have coming up, putting your tax refund towards this purchase will save you stress later.
5. Donate to charity
Unlikely to help you financially, donating your tax refund to a charity or cause close to your heart is a great feel-good way to spend the extra money. Think of it as paying it forward. Remember to hold on to donation receipts so you can itemize your deductions on next year’s taxes.
6. Spend on an experience
Spending your refund on an experience such as traveling or taking a class is a satisfying way to increase serotonin. The memories you gain from experiences last a lifetime.