Some of us expects an income tax refund this year from Uncle Sam. But before you think of spending it on things that you don’t really need, think again and use it towards something that really matters like saving for retirement. The average income tax refund is usually around $3000, and most people get that money within three weeks of filing their income tax returns.
Whether it’s paying off debt or creating an emergency fund, there are smart ways to spend that extra $3000 money. Here are some ways to spend your tax refund check that will give you long term benefits:
1. Beef up your emergency fund.
If you have an emergency fund already to cover your expenses in case of an unexpected job loss or medical bill, then that’s good.
Even if you have one, why not beef it up with your income tax refund. Keep that cash in an online high-yield savings account. There, your tax money will grow with the power of compounding interest. For example, if you put $3000 tax refund into a high interest savings account that earns 5% interest, in 5 years, you will have $3850.
2. Invest in a retirement fund.
Another best use of your tax refund is to invest it in Roth IRA, traditional IRA or a 401(k). Why?
Because saving for your retirement is important. You need to make sure you have enough money to live off when you can no longer work. See how much you’ll need to save for retirement by using this retirement calculator.
3. Use your tax refund to pay off your debt.
Use that refund to pay off a credit card debt that’s charging you 18 to 22% interest. Because credit cards tend to have higher interest rates than other forms of credit, it makes more sense to pay off those debts first.
4. Use your tax refund to pay off your student loans faster.
Also, if you have student loans or any type of personal loans, you can use that money to pay them off. Paying off debt means you will pay less in interest and you will save more money in the long run.
5. Buy a real estate property.
Depending on how much income tax refund you expect to receive this year, some or all of that money can be used toward a down payment for a rental property.
Coming up with 20% down for a down payment on a house can be tough. So your tax refund check can help a great deal.
6. Invest in yourself.
Another best use for your your tax refund money is to invest in yourself. Use some of that income tax refund to learn about how to make and save money. Buy books and magazines about personal finances. The more you learn about personal finances, the more you will be able to take control of your money and eventually achieve financial success.