For many, tax season equals refund season and there is a temptation to spend the refund on something that falls into the “want” category. However, with more than $3.86 trillion in student loan, auto loan, and credit card debt combined, it’s pretty easy to see that there are more impactful ways a person can use the annual “windfall.”
Experts advise to pay down debt, begin a savings fund, or invest toward retirement as ways to use a tax refund for long-term benefit potential.
- Pay Your Debt: Reducing debt is possible with dedication and a plan, whether you pay accounts with the highest interest rates first or you prefer the debt snowball method. In the end, you’ll look back at what has been accomplished.
- Save for Emergencies: If you are among the 57% of Americans with less than $1,000 in savings, then consider the benefits of having money set aside for unexpected events that can lead you further into debt or cause stress when savings funds are not available. Three- to six- months of living expenses is the rule of thumb, but a $1,000 starter commitment to yourself builds a positive habit that will serve you well forever.
- Invest in Retirement: Contribute additional funds toward a 401(k), open an Individual Retirement Account (IRA), or open a share certificate at SEFCU. Your employer or your financial institution can assist with these investments for free!
If your debt is under control and your retirement account is growing steadily, there are other ways to invest your refund dollars that will do more for you than the perceived well-being from a vacation.
- Advance Your Education: Certification programs, higher education degrees, and other means of skill development can put you on a more rewarding and/or lucrative career path. What educational opportunity have you put off in the past because you felt you didn’t have the money?
- Make Home Improvements: Owning a home is a continuous adventure in updates, maintenance, and repairs. Making small fixes along the way is a good way to avoid major problems in the future, and your home will be in prime condition for you to enjoy worry-free.
- Donate to a Charity: Your community is full of opportunities to share your time, talent, and treasure. Find a cause that is dear to your heart and donate some or all of that refund to create a positive ripple effect toward others. The donation may also be tax-deductible next year! If you are unsure where to donate, consider a $1/month contribution to SEFCU’s Giving for Good program.
If you have not yet filed your return, here are some helpful links from the IRS:
- Earned Income Tax Credit – Qualification and Explanation
- Free File Software Offers – See if you qualify for this free assistance