Smart ways to spend your tax refund
If you're getting a tax refund, here are ways to put it to good use for your financial future by spending it wisely.
You've finished your tax returns and discovered you'll be receiving some money back. Are you wondering what to do with your tax refund? Before you dream up ways to spend that money, think of how helpful this extra paycheck could be. Here are ways to use your tax refund wisely:
- Boost your emergency fund. Experts recommend stashing the equivalent of three to six months worth of income in an emergency fund. If your account is low, has been depleted or doesn't exist yet, your refund could help you cover expenses in an emergency.
- Pay off your debt. Whether you're making payments on a car loan, education loan, mortgage or high interest credit cards, use your refund to make a dent in what you owe.
- Ramp up retirement savings. If you've gotten behind in your savings, your tax refund might help you catch up. Not only that, you'll get to enjoy watching how far that money can go when it's accruing interest.
- Start or add to a college fund. Give the gift of an education. Even if your kids are young, those college tuition bills will be arriving before you know it — and they'll likely be larger than you expect. Seek out an education savings plan and get a head start on your child's education fund.
- Make an investment. Consider putting your refund money to work for you. Making an investment can help you grow your money faster than a savings account by earning higher returns, or by building on pre-tax dollars.
- Improve your efficiency. Investing in home improvements can pay off in reduced energy bills. For example, replacing an old refrigerator with a new ENERGY STAR®-rated unit can save you $200 to $1,100 over the lifetime of the appliance. Some energy-efficient upgrades may help you get a discount from your utility company as well. Even small things like using energy-efficient light bulbs can help.
- Bolster your life insurance. If it's been awhile since you reviewed your insurance coverage, you may find you're underinsured. Your State Farm® agent can help you determine the level of coverage that's right for you.
- Invest in yourself. Have you put off continuing education because you didn't have the funds? Your refund might provide a good start toward tuition. (Even better: Earning a higher certification could lead to a raise or promotion!) Perhaps you want to learn something to help start a side business. You could also make an investment in your health: Get a personal trainer, update your home exercise equipment or join a gym.
- Be generous. Find a cause or organization that you feel strongly about and donate a portion of your refund to it. Your contribution, added to others, could make a bigger impact than you think.
- Buy something you need. Is the washer on its last legs or the lawnmower in danger of conking out before summer ends? Put a windfall to use by replacing must-needed items to help prevent a dip into an emergency fund.
