Getting your tax return may feel like hitting the (miniature) jackpot, but it can be easy to misuse your tax refund. For many Americans, the tax refund is the biggest lump sum paycheck of the year, however TurboTax data shows that most people spend it within 21 days. Check out these ways to get the most out of your tax return!
Pay off high-interest debts
If you receive a tax refund, consider paying off high-interest debt, such as credit card debt. Paying down large balances should be your top priority. Putting your extra cash into any outstanding debt you have such as: student loans, auto loans, and mortgage loans, are all good places to start utilizing your tax refund.
Invest money into your home
There is a real financial benefit to investing money into your home. Increasing the curb appeal of your house will increase its potential value on the market. There are a number of projects you can do to increase your home’s value. Keeping your home updated with current appliances, efficient water/electricity, and a contemporary aesthetic, are all important for when you decide to sell your home – whether it’s now or in the future.
Start a retirement account
If you potentially want to collect interest on your money, invest it in different types of Deposit Accounts such as a Money Market, Savings account or a Certificate of Deposit (CD). Plan to leave the funds in the account of your choice for an extended period of time in order to build value.
Add to your savings
It’s wise to have an emergency fund in the incident you need extra cash. Consider adding your tax return (or a portion of it) to your savings account for a rainy day.
Save for your children's education
You can start a 529 – a saving’s account for educational expenses – for your children with your tax return. Just remember, your children will have their whole lives to pay off their college debt, whereas you have a much shorter span of time to save for retirement.
Don't spend it all in one place
You don’t have to spend your tax return all at once. You can split up the return and use a portion of it to pay off debts, to save for a rainy day, or on home improvement projects.
Don't get a refund
Although it feels great to receive a check after tax-season, you’re also giving the government a zero-interest loan. Consider adjusting your withholding amounts on your W-4 so you don't get a refund next year.
It’s okay to spend some of your tax return on a small reward for yourself. You can spend it on a well-deserved vacation, a new television or a phone. Whatever item or experience you choose to spend it on, make sure you’re finding the best deal!
. Tax Refund Realities and How Americans Spend and Save Their Tax Refunds [Infographic], TurboTax Blog
*Consult a tax advisor