Tax season is exciting, or at least it is once you receive your refund. A tax refund can feel like bonus money, and if you’re expecting a big one this year, you may be starting to think about what you’re going to do with it.
Before you put it in savings or spend it all, remember that this is a great opportunity to make the most of it. There are some ways to allocate your tax refund that could make the money go further.
Here are some ideas for how to spend, save or invest your refund this year.
Establish an emergency fund
First and foremost, if you don’t already have an emergency fund, then you need one. It is generally recommended that everyone have enough money set aside to cover three to six months’ essential living expenses. At the very least, you need some money saved to cover unexpected but necessary expenses, like a car repair or emergency room bill, so that you don’t have to go into credit card debt to pay for them.
Pay down high-interest debt
Speaking of credit card debt—if you already have a basic emergency fund set aside, the next thing you may want to do is pay down any high-interest debt. In the long run, it’s usually a better financial move to pay off debt with the highest interest rate before you do anything else with that money, like invest it.
Put it into a TruStone account with a high dividend rate
If you’ve already paid off high-interest debt, then one good option is to put your refund into a high-yield savings account or Money Market account. This is a good choice if you want to let your money build interest somewhere you can still access it easily. You could also put your refund into a certificate—but this option is best reserved for people who already have enough money in a more easily accessible account.
Open a TruStone IRA
If you have a solid savings already, then you might consider putting your refund towards an Individual Retirement Account (IRA). Benefits of these accounts include that they tend to offer more investment options than 401(k)s and that they strictly limit your access to the funds you put into them, basically guaranteeing you will use them for their intended purpose. Depending on your income and the retirement options available to you through your employer, you may even qualify for a tax deduction on your contributions.
Refinance your home loan with TruStone Home Mortgage
Refinancing your mortgage at a lower rate or shorter term can save you a lot of money on interest in the long run. Maybe you’ve thought about refinancing, but haven’t yet because you didn’t have the extra cash to cover the closing costs. Well, this year’s tax refund may be the perfect opportunity to refinance and save.
If you’re the type to scrimp and save every extra dime, or if you at least know you have your financial bases covered, it may be time to spend your tax refund on yourself. That doesn’t mean you should blow it all on clothes or food, but you should consider spending it on something that will make you happy. Life is meant to be enjoyed, after all, and it’s important to make good memories you will be able to look back on into your old age. So consider using your refund on an experience, like a vacation, concert tickets, play or something else that you will be able to remember with joy long after it’s over.
Donate to charity
A strong community can exist only when neighbors look out for each other. If your finances are in a good place, and you want to help your neighborhood thrive, consider giving your tax refund to a local nonprofit. Check Charity Navigator or GuideStar to see if a local charity is a verified nonprofit, or consider one of the nonprofits that TruStone proudly supported with our Casual for a Cause donations last year.
Whatever you decide to do with your tax refund, make sure you feel good about it. Just keep in mind that getting a big refund isn’t necessarily a good thing. That money was yours all along, but if you had it, you could have used it sooner and payed down debt or put it somewhere it could earn interest. So, if you usually get large tax refunds, look into how to file your W-4 so that you have less money withheld from each paycheck.