Rather than waste money from the government, consider smart things to do with your tax refund. Most people can't wait to file their annual tax return, especially if they're expecting money. There are many uses for this money, but unfortunately, a number of people squander their refunds. Be smart with your money. Here are seven smart things to do with your tax refund.
1. Build an Emergency Savings Account
Of all the smart things to do with your tax refund, your savings account should top the list. Having an emergency cushion is helpful after a job loss or a medical emergency. Even if you don't deposit your entire tax refund in the bank, make sure you stash a large percentage of your refund. Ideally, you want about six months of income tucked away.
2. Pay off Your Credit Card Debt
If you’ve been struggling with credit card debt, but don’t have the disposable income to pay down your balances, your tax refund can be the solution. Debt can follow you from year-to-year, in which you could end up paying hundreds of dollars in interest. Gather all your credit card statements and decide which debts to pay off. If you can't pay all your balances, pay down debts with the highest interest rates.
3. Refinance Your Mortgage Loan
Are you paying a high mortgage rate, but haven't refinanced because you want to avoid closing costs? If so, use your tax refund to pay your closing costs. Lowering your mortgage interest rate can save you thousands over the life of your mortgage. This savings can lighten your financial load and free up cash for other things.
4. Start Your Own Business
Are you ready to leave your employer? Do you want to start your own business? Use your tax refund as start up capital for your own venture. The money can go toward building a website, printing business cards and flyers, as well as marketing your business. Using your tax refund is smarter than taking a loan. This way, your business remains debt-free.
5. Remodel Your Home
If your house is a little dated and you're thinking about moving to a more modern place, consider updating your current home and saving money. Buying a new house is costly because of the down payment and closing costs. But if you remodel your home with your tax refund, you can create a nicer place at a lower cost. Plus, a remodel helps boost your property value.
6. Start a College Fund
If you don't want your kids to deal with expensive student loan debt after graduation, use your tax refund to start a college fund. College can cost upwards of $20,000 for four years. Save your tax refund each year and make additional deposit into this fund, and you might save enough to pay their entire tuition. Keep this money in a high-yield savings account and earn a higher interest rate.
7. Pay down Your Mortgage Balance
One or two extra mortgage payments a year can shave up to seven years off your mortgage term. Use your tax refund to pay down your home loan balance. You’ll build equity faster, plus pay less interest over the years. In the end, you’ll enjoy a debt-free lifestyle sooner rather than later.
Getting a check from the federal government can make your day and you might think of many uses for this money. Rather than spend your cash on a big-screen TV or another nonessential item, invest in your future. What do you plan to do with your tax refund?