March 21, 2018
It’s that wonderful time of year (for some) when the tax returns are filed and tax refunds are issued. While not everyone receives money back, a moderate percentage of the American workforce does. According to the IRS, 111 million tax refunds were issued in 2016, each averaging $3,053. That’s a sizable chunk of change to have handed back to you. It begs the question: Should you spend it, save it, or invest it?
If you’re getting a refund this year, you may be tempted to spend it on something fun – like a bigger TV, a new car, or an exotic vacation. But there are other – smarter – ways that your refund can work for you. Deciding how to use your tax refund can be challenging, so here are 4 ways in which your refund can help you gain financial stability and give you peace of mind:
Pay Down Your Debts
We sometimes think of our debt as just another monthly bill, but did you know that paying them off sooner than expected can yield huge dividends in your personal finances? Using your refund to pay off a credit card balance with a high interest rate is like earning money on your investments. If you have a student loan, consider putting your refund toward paying off the principal of your loan, which can reduce your interest payments. Freeing yourself from those monthly payments will allow you to more easily save money moving forward!
Set Up an Emergency Fund
If you don’t have an emergency fund already – or if your balance is lower than you’d like – consider building it up with a portion of your tax refund. An emergency fund helps you cover unexpected expenses like home repairs, natural disaster recovery, car accidents, etc., so when faced with an emergency, you don’t have to borrow money at high interest rates. Having three to six months’ worth of expenses saved up can help keep you out of debt and pay for unexpected expenses in the future.
Invest for Retirement
Another way to use your tax refund to strengthen your finances is to put it toward your retirement fund. You can use it to increase your 401(k) contributions or invest in an IRA. Either way, the money will grow tax-deferred and you’ll be thankful for this long-term money management tactic when you’re older.
Increase Your Personal Savings Goal
Do you like to save money for big purchases? Perhaps you’re looking to buy a new car or a new house? Do you want to upgrade your furniture or make a home improvement? Save now for what you want to buy later and set your tax refund aside to help pay for your future expenses.
If you’re unsure which of these ways you should spend your tax refund, we can help. Call (844) LUSO-FCU or visit one of our branch locations to speak to a member service representative.