Expecting a tax refund? You need a good plan on how to spend the money. Of course, you may want to treating yourself “as you deserve,” but remember that the refund is not a bonus check. Give the check a purpose by considering your financial situation and determining your top development needs. Below are five priorities to help you put your tax refund to better use and build towards greater financial security in future.
1. Finance your emergency fund
If you do not have an emergency fund, you need just one major expense to send you down to financial disaster. A good emergency fund is one that contains three or more months of savings in a readily available interest bearing account. Saving such an amount requires months or years of sacrifice, but a refund check can boost the fund, giving you a bit of financial security.
2. Pay off a high-interest debt
You can use your tax refund to pay off a high-interest debt. For instance, pay down that credit card balance. Depending on the interest rate, you can save up to 20% every year in interest on any balance that you clear. Use your refund check to create a debt elimination program that tackles those payday loans, title loans, high-interest student loans, and credit cards.
3. Save for retirement
You can use your refund to strengthen your financial position further by putting your check into an IRA or investment account. If you do not have one established, start on! Many institutions today may it a simple process and can all be done online. You may be eligible for a Roth IRA if you meet certain income requirements defined by the IRS and do not have an employer-sponsored retirement plan.
4. Invest in Real Estate
If one of your goals is to own your home imagine how far a tax refund check would go towards a down payment. Already purchased your home? Consider paying down your mortgage early. Use your tax refund to pay down the principle on your mortgage. You will save on interest payments and pay off your mortgage earlier. Your tax refund can also go towards purchasing a second property that you can use to generate rental income.
5. Refinance your mortgage or make home improvements
If you already own your home you may want to look into refinancing your current mortgage to get a more favorable interest rate. Consider using the tax refund check to pay the closing cost on the new mortgage and you will save on interest. If you are comfortable with your mortgage rate, consider upgrades like a new roof, kitchen or bathroom upgrades, or new energy-efficient appliances to lower your electricity bills. Some of these improvement projects will not just make your home more comfortable but can also increase your home’s value.
Remember, planning for your financial future does not have to be an all or nothing game. You don’t have to be completely dedicated to debt elimination that you neglect your emergency fund or retirement. Working with a financial consultant can help you balance your goals. If you need help planning and managing your finances Schedule a Free Consultation with Abena today.