April is tax season and, for a lot of people, that means a tax refund is on its way. It’s exciting to get a chunk of money all at once, but it’s also important to be wise about how you spend it.
Should you save it? Should you spend it on a much-needed home repair, or perhaps a down payment for a newer car? Or maybe a long-delayed vacation is in order!
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There are a lot of options to consider, and you’ll need to decide which is the best one for you. Here are some ideas to think about as you look for ways to make the most of your tax refund.
1. Consider Your Savings
Unfortunately, over a third of Americans have less emergency savings now than they did pre-COVID. This is just one example of how the pandemic affected many people negatively. Perhaps this is a good time to replenish your savings, so you will have some emergency money.
Many experts recommend having at least three months’ worth of income set aside in case of a job loss or other serious financial issue. Even if you can’t hit that, having some level of savings — even $1,000 — can make a big difference in a crisis.
Another savings option is to put money toward your retirement accounts. Over the years, that extra contribution can earn big returns and make a huge difference.
2. Pay Down Some Debt
Do you owe money on credit cards, loans, or other debt? One of the best ways to use part of your tax refund is to pay down some of that debt.
Remember that all debt has an interest rate that accrues every month. When you pay down your balance, you’re making a bigger difference than just the amount you paid. You’re also saving interest you would have paid on that balance.
If you can eliminate one of your debts, that’s another great option. Anytime you can have less money coming out of your budget, it’s a good thing for your financial health.
Tax time is a great time to shop around and lower all of your bills. For example, Freeway Insurance compares rates from a variety of companies to get you the best home and auto insurance prices available. Take advantage of the chance to save wherever you can!
3. Have Fun With Your Refund
Tax refund time isn’t just about serious spending goals — it’s also about setting aside some money to simply have fun. Have you been putting off vacations because of COVID? Maybe this is the year to finally travel somewhere and relax.
You can also make a major purchase you’ve been saving up for, or perhaps set up a fun experience for you and your family.
Taking breaks and having fun is great for your mental health!
How Will You Use Your Refund?
How will you use your refund? These three ideas are things to keep in mind, but, of course, only you know what’s best for your situation.
Whether you save, spend wisely, or simply have fun, tax refund season is something to enjoy!