It’s getting down to the wire. Are you anticipating a big refund? Have you decided how to spend it?
According to a report by Bankrate,
- 6% of taxpayers will spend their refund on a vacation or a shopping spree.
- 30% will pay down debt.
- 28% will save or invest it.
- 26% will use the money to pay bills.
What percentage do you fall in? If you’re wondering how you can use the extra money wisely, here are 5 smart ways to spend your tax refund.
Saving doesn’t have an immediate payoff but it’s a good strategy. Put that money in a savings account that will earn interest, set-up an emergency fund with it, save for an upcoming expense, or put it in a 529 Savings Plan for college.
Pay Down Debt
It should be a top priority to pay off anything that is accruing interest. Credit cards and student loans are a great first place to look. You can also use the money to make an extra mortgage principal payment.
Saving for retirement? Add more to the pot by depositing your refund in an individual retirement account. You won’t have to pay tax on the contribution until you withdraw the money and it could make you eligible for a tax deduction.
Donating some or all of the money to charity is a great way to give back to the community. It can also reduce your tax bill next year. Charitable contributions are deductible if you itemize and if the charity qualifies with the IRS.
There’s something to be said about taking time off and seeing the world. If you’ve got somewhere you’ve been wanting to go, take the opportunity to go!
A note about refunds
If your refund is significant this year, you should look into adjusting your withholding. There’s no reason to give the government an interest free loan. While that big refund check is nice, wouldn’t it just be better to keep more of your paycheck throughout the year?