A tax refund is more than just extra cash in your pocket—it provides a nice opportunity to make an impact on your financial well-being.
As you await your reimbursement from Uncle Sam, consider these five tips to make the most of your tax refund:
1) Save for emergencies. Open a high-yield savings account that serves as an emergency fund. Ideally, you should have three to six months of living expenses should an unexpected life event occur, such as home or car repair or loss of job.
2) Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first. How you choose which debt to pay off first will depend on your specific situation. Save on interest by paying off high interest loans first or decrease the amount of outstanding debt you have by knocking out those pesky loans.
3) Save for retirement. Consider contributing to a Traditional or Roth IRA with your refund. A Traditional IRA provides the opportunity for your investments to earn tax-deferred growth, while a Roth IRA can provide for tax-free growth over the long term. Both accounts are tax-advantageous and can potentially add a nice savings to use in retirement, outside of employer-sponsored plans.
4) Put it toward a down payment. The biggest challenge most first-time home buyers face is coming up with enough money for a down payment. If you intend to buy a new home in the future, putting your tax refund toward the down payment is a smart move. A greater down payment will result in more of your monthly payment going towards equity and less towards interest.
5) Invest in your current home. Use your refund to invest in home improvement projects that will increase the value of your home. Small projects - like minor kitchen remodels, entry door replacements, siding and landscaping - will provide you with the best payoff when it comes time to sell your house. And, while a bathroom addition would be nice, it is among those projects with the smallest return.
Want more tips on how to manage your taxes to help achieve your financial goals? Find more Tax Planning Tips for Income in Busey's Money Matters.
Busey is dedicated to providing support and resources to help you achieve your financial goals—whether buying your first home or saving for retirement. Visit any Busey location or call 800.672.8739 today to get started.