Making the Most out of Your Tax Refund

February 19, 2018 at 11:02 PM Leave a comment

From February to April each year, millions receive an influx of cash from a tax refund, ranging from a few hundred to several thousand dollars. That additional money can be put to use in several different ways, including making a major purchase, setting aside for a rainy day, or even splurging on a vacation for the family. For the individuals who receive a large tax refund this year, knowing exactly what to do with it can be a little daunting. But don’t fret. Below are a handful of smart ways to ensure you’re making the most out of your tax refund as soon as it hits your bank account.

Set it Aside

When a tax refund check comes in, many are quick to spend down the balance to pay down debt, make a big purchase, or cover necessary bills. While these are all fine choices for a tax refund, most consumers overlook simply putting some of the money aside for a rainy day. Financial emergencies pop up without notice, and for most, without enough in savings to cover the need. When that takes place, it can send your financial situation into a whirlwind. Plan to set a portion of the next tax refund into a high-yield savings account for those just-in-case days that are sure to come in the future.

Eliminate Debt

If your emergency savings is covered, the next smart option for making the most out of a tax refund is to pay down high-interest debt. Today’s credit cards have double-digit interest rates, and when a balance remains unpaid every month, interest accumulation adds up to a pretty penny. Take a portion of the tax refund and pay down the debts with the highest interest rates first to save yourself on interest charges in the future.

Contribute to Your Retirement

Just like setting aside for an emergency fund is necessary, so is saving for the long-term. Taking a portion of your tax refund and infusing that into a retirement account is a sound choice. Individual IRAs provide an option to save for the often-significant goal of retirement, and they are both easy to establish and manage over time. If you aren’t sure of your options for retirement savings, consider speaking with a financial planner or investment professional to get the low-down on what you’re able to do.

Pay for Expenses Now

In addition to saving some of your tax refund and working toward eliminating high-interest debt, another way to make the most out of a cash influx is to pay expenses in advance. This could mean creating an account for a specific goal, like a vacation or holiday shopping, and simply earmarking it for that need now. Think about the expenses you can take care of in a lump sum for the year, like car or life insurance, some utility bills, or the new phone you will need in the next six months. Using a tax refund for this purpose means you won’t spend down the cash long before you need it.

If you aren’t one who receives a tax refund this year, you aren’t alone. About 20% of Americans don’t expect a large check come tax time, which can mean the need for extra cash is pressing, especially if you owe during tax season. Rest assured you have options, too. You may qualify for a quick cash loan from Familytitleloans.org, or you may have the option of pursuing a personal loan without the need for collateral. No matter the reason behind your cash needs, understanding these options can get you through a slow financial period easily and quickly.

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