Tax season is upon us, and can be a time of stress for many, but it can be a joyful time for the roughly 75 percent of Americans who receive income tax refunds.
So, what can you do with your refund?
The best choice for one person may not be the best choice for another. But, experts agree on one thing: If you have debt, apply your refund to paying it off, whether it’s credit card debt, student loan debt or other consumer debt.
Here are the seven smartest things you can do with your refund:
- Pay down debt. If you have any consumer debt — student loans, credit card balances or installment loans — pay those off before using your refund for any other purpose.
- Add to your savings. You can use the money to build up your emergency fund, your kids’ college funds or put it toward a specific goal, such as buying a house or a car or going on a big vacation.
- Add to your retirement accounts. If you put $2,500 from this year’s tax refund into an IRA, it would grow to $8,500 in 25 years, even at a modest 5 percent rate of return. If you saved $2,500 every year for 25 years, you’d end up with more than $130,000 at that same 5 percent rate of return!
- Invest in yourself. This could mean taking a class in investing, studying something that interests you or even taking a big trip. Do something that enriches yourself or adds value to your life.
- Improve your home. Consider putting your refund to good use by adding insulation, replacing old windows and doors or other improvements that would save energy, and therefore money. You’re adding value to your home at the same time you’re improving your living experience.
- Splurge on something you’ve always wanted to do. If you’re out of debt and have substantial savings, this may be the time to take that trip that you’ve always dreamed of taking. Such an experience can be life-changing!
- Now is the time to start preparing and planning for what you’ll do with your chunk of change when your refund hits, so that you don’t react on impulse or emotion when your money comes in and regret your spending.