Last year, the average federal tax refund was over $3,000. While this season’s typical refund is expected to be smaller, many Americans can still expect a nice chunk of change back from the IRS. If you can resist the urge to splurge with your refund, here are five ideas on how to put it to smart use.
- Build your emergency fund. Experts recommend setting aside three to six months’ worth of expenses in a bank account as a safety net in case of unexpected expenses or loss of income.
- Reduce your high-interest debt. Paying down credit card balances or other debt with high interest rates can save you big on finance charges.
- Invest in a home. A generous refund could help you renovate your current home or put down money on the purchase of a property.
- Save for your goals. Consider using your cash to give a nice boost to your vacation fund, retirement account or other savings.
- Help others. If giving to those in need is a priority for you, donating to a worthy cause can be a fulfilling use of your refund.
Not expecting much of a refund this season? That may be a good thing if it means you didn’t overpay the IRS by a large amount. If you do receive a big refund, consider adjusting your withholdings or estimated tax payments to see if you can receive more in each paycheck rather than waiting for a big refund at tax season.
Draper and Kramer Mortgage Corp. does not provide financial planning, tax or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide and should not be relied on for such advice. Do not act or refrain from acting on the basis of this material without first consulting a qualified professional for advice.