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One of the silver linings of filing your taxes is the opportunity to receive a tax refund. Big or small, this refund can get you one step closer to financial freedom. While what you do with your tax refund is solely up to you, here are three smart ways to spend your tax refund for you to consider.
Paying Off Debt
Using your refund to pay-down existing high-interest debt, like credit cards, student loans, or medical bills is one of the smartest things you can do with your tax refund, in our book.
Be sure to apply your tax refund directly to the principal amount to help decrease the amount of interest the debt accumulates each month. Even small, additional payments can help you pay off the debt sooner, and help you save money over time.
Major Necessary Purchase(s)
Cars and homes fall under this category. You add your tax refund to your down payment for one of these large purchases. Putting more money down has plenty of advantages.
For cars, having a larger down payment means you’ll have a lower monthly payment on your auto loan, and you can potentially get a better interest rate.
For homes, having a larger down payment means you’ll have a smaller mortgage loan balance, you can potentially have lower mortgage rates, and you may be able to reduce or eliminate mortgage insurance premiums.
There are several ways you can choose to invest your tax refund. Some ideas include:
- Investing it in your workplace retirement account (especially if your employer matches your contributions)
- Contribute it to an IRA
- Build up a rainy day fund in a high-yield savings account
- Start a college savings account for your child(ren)
If you’re unsure of where to begin investing your money, or need help to determine the best way to invest your tax refund, we recommend consulting a certified financial advisor.
With careful consideration and planning, you’ll be able to find the perfect way to spend your tax refund, getting you one step closer to financial freedom.