Instead of going on a spending binge, tax refunds help me keep the momentum going toward my financial goals. A tax refund can be a financial blessing depending on where you are in your financial journey. You can pay down debt or save money for the future.
Use your tax refund wisely
Even though what appears to be a government gift is a delayed receipt of your own money, the best use of those funds is not always obvious. This year, the issue is even more fraught, with many households facing increased financial strain due to rising interest rates, inflation, and the expiration of assistance programs linked to the pandemic, apnews.com wrote.
If you’re looking for ways to put your tax refund to good use, here are three ways according to US Today.Lindsey Bell, Chief Markets & Money Strategist at Ally Bank, is here to assist you in sorting through your options. Here’s what she recommends you do with your large sum of money.
Pay off your high-interest debts
If you have high-interest debt, such as a credit card balance, you should try to pay it off as early as possible. And your tax refund may be able to help you reduce or eliminate your debt. The better your credit score, the easier and less expensive it will be to borrow money the next time you need it.
Save a portion of it
As a general rule, it’s a great idea to save enough money to cover three to six months’ worth of living expenses. Putting your refund in the bank could help you get closer to your goal. But, according to Bell, now is a perfect time to build up an emergency fund. Because inflation has been rising recently, it may be time to replenish your emergency fund to account for higher prices.
Spend a little extra money on yourself or your long-term goals
It’s a good idea to put your tax refund toward improving your financial situation. But that doesn’t mean you should ignore your own needs. Instead, Bell recommends spending some of your refund on something that will lift your spirits, such as a gym class or a special purchase.
A tax refund isn’t something you can rely on every year. So if you’re expecting a large IRS refund this year, make the most of it, regardless of how large or small your refund is.