Before you blow your refund on a sinfully expensive weekend, take a step back and try to determine the best approach you can take with this money. To help you get started, we've compiled this list of eight financially responsible ways to use your tax refund this year.
- Build or boost your emergency fund
Having a strong emergency fund is a crucial part of your financial health and stability. If you don't have a fund with three to six months' worth of living expenses set aside to cover unexpected events, work on setting one up now. Use some of your tax refund to start building your emergency fund or boost an existing one.
- Pay down high-interest debt
High-interest debt can kill the best of budgets. If you're carrying outstanding debt with hight interest, consider using some of your tax refund to pay it down.
- Invest in your education
If you've been looking for a way to advance your career and increase your earning potential, this may be your chance. Consider furthering your professional education by allocating some of your tax refund to career workshops, conferences or additional certifications.
- Feed your savings
It's always a good time to boost your savings, and tax refund season is no exception! Set aside a portion of your refund for your long-term savings to help you get closer to your financial goals.
- Prepay your mortgage
Making an extra mortgage payment or two can be a great way to free up some money for the long term. Reducing the principal can have an exponential effect on your loan since so much of it goes towards interest over the life of the loan.
- Make home improvements
Spending some, or even all, of your tax refund on improvements that increases the value of your home is an investment in your equity. Similarly, using some of these funds to increase your home's energy efficiency can pay off for years to come.
- Start or contribute to a college fund
If you have children, or plan to start a family in the future, consider allocating a portion of your tax refund to a college savings fund, such as a 529 savings plan. Contributions to a 529 plan may be deductible on your state taxes, and earnings are tax-free when used for qualified education expenses.
- Invest in your retirement
If eligible consider allocating a portion of your tax refund to your employer-sponsored 401(k) or an IRA. The earlier you start investing for retirement the more you can potentially accumulate for your golden years.