Are you waiting for that income tax refund to hit your bank account? Or, better yet, have you determined what you’ll do with the money? It may be tempting to purchase frivolous trinkets from Amazon like this yodeling pickle or an eight pound bag of cereal marshmallows. Instead of indulging in unnecessary knick-knacks, a tax refund is an opportune time to strategically position ‘extra’ money. Below are five sensible ways for using your tax refund.
1. Find a high interest savings account.
Do you know the interest rate associated with your savings account? You may be surprised at how little money you’re actually earning. Take the time to research and find a bank that offers a savings account with a high(er) interest rate. Capital One 360, AMEX and Ally currently have competitive rates ranging between 1.45% to 1.55%.
2. Start an emergency fund.
Financial advisors suggest having three to six months of living expenses set aside. Because, let’s face it; flat tire, broken dryer or the loss of a job can occur at any time. An emergency fund helps you prepare (as much as possible) for the unexpected. Take your entire tax return and jumpstart an emergency fund.
3. Invest in home improvements.
Whether you’ve been dreaming of a new kitchen or adding a deck, tax return time provides homeowners with the opportunity to renovate. You can also use the funds to make your home more cost-efficient. Upgrade older appliances for ones that are more energy-friendly which, in return, will help lower your bills.
4. Pay off your credit card debt.
You’re more than likely paying a high interest rate on your credit card. Take your tax return and make a large payment on your credit card Instead of letting the interest build up. Just think of the money you’ll be able to save once your credit card payments diminish.
5. Overpay monthly expenses.
Do you have a mortgage? Consider paying more than what’s required for your next payment. This can positively affect the amount of total interest expense owed over the life of the loan. Remember that you will not pay interest on the extra contribution.
What do you plan to do with your tax return? Comment below with any money-saving suggestions.