It’s that time of year when your tax refund is likely to arrive soon. When you see that check, it can be extremely tempting to treat yourself by splurging on something. This is a fun short-term option, but a smarter move is to put the money toward a long-term goal such as saving for a house or getting out of credit card debt.
Smart Uses for Your Tax Refund
There are a number of smart strategies for putting your tax refund to good use. Choosing the best option for you depends on your financial needs and long-term goals.
- Paying Down Debt – Depending on the type and amount of debt you need to repay, this can be the smartest use of any windfall cash. As long as you’re current on mortgage, car, and student loan payments, these debts may be too big for your refund to make much of a dent. If you’re looking for credit card debt solutions however, then that’s almost certainly the best use of your tax refund. Credit card debt usually has a high interest rate, so any amount you pay off will be a long-term benefit.
- Boosting Retirement Savings – Any time that you can add to a retirement account early, you’re taking advantage of compounding interest. The sooner you put money toward retirement, the faster and greater it will grow. Unless you’ve got high-interest debts to deal with, then retirement is always a safe use for extra money.
- Saving for a Rainy Day – Emergency savings is an area that many consumers tend to neglect. An emergency fund can be the difference between staying afloat and sinking into credit card debt and bankruptcy. If you don’t have enough savings for 6 months of expenses, then setting your refund aside for a rainy day is a great choice.
- Speed Up Lifestyle Improvement Timeline – If there is a big change on the horizon, chances are it’s expensive. Whether you’re saving up for a car, a house, or for starting a family, boosting those efforts with your tax refund is a responsible choice that will save you from financial headaches down the road.
Making the Smart Choice is Hard
No matter your financial goals, it’s always best not to waste an opportunity to make them easier to accomplish. New clothes or expensive electronics are enticing and might create temporary happiness. Just remember that they’re small sacrifices to make for long-term joy and financial health.
If you’re interested in financial counseling to help assess your next move, call American Consumer Credit Counseling today at 800-769-3571.