5 Smart Things to Do with Your Tax Refund

According to the IRS, eight in 10 filers receive a tax refund each year, averaging around $3,000. While you may be tempted to run out and spent your refund on the latest smartphone, flat screen TV or trendy new outfit, there are some smarter alternatives that will help reinforce your financial foundation.

Here are just a few:

1.  Don’t spend it before you get it.

For some of us, just knowing we have money coming in is like already having the cash in our wallets. Try to avoid making purchases under the assumption that you will “pay yourself back” once you receive your refund. You may end up spending more than you should or adding to your credit card debt.

2.  Pay down your credit cards.

One of the best ways to use your refund is to pay off or pay down any credit card debt you have. With interest rates ranging from 15 to 18 percent or higher, you will save lots of money by making a dent in that debt. You’ll also get a psychological lift from knowing you have eliminated or are on your way to paying down the amounts you owe. Check out this debt-reduction calculator to see how much you’ll save by making extra payments.

3.  Start or add to your emergency fund.

Many of us have little money set aside for the unexpected, so if you’re in good shape with your credit cards, use your refund to start to build (or rebuild) your emergency fund. Most financial planners suggest saving between three and six months of living expenses. That may be unrealistic for a college student, but it’s still important to have a least some money set aside in case your car breaks down or your computer conks out.

4.  Set aside money for next semester’s books.

Another good idea is to save some of your tax windfall to offset the expected cost of your books or other educational costs for next semester. By doing so, you may be able to take out less in student loans, thereby reducing the amount you’ll eventually have to pay back.

5.  Make repairs to your car or home.

If you’ve been putting off replacing your bald tires or fixing that leaky showerhead, think about using some of your refund to make much-needed repairs. Some new tires are actually designed to increase fuel efficiency, so you may actually see some reduction in gas consumption. Repairing faucets and other leaks will reduce the amount of water you use. You also might want to consider getting a home energy audit, which can identify ways to reduce energy costs in your home. Some programs even offer things such as free energy efficient light bulbs and flow-reduction faucet aerators

These are just few of the ideas for using your tax refund wisely. Have some suggestions you would like to share with the SWC community? Submit a comment below!

Higher One $tart with Change: 5 Smart Things to Do with Your Tax Refund

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