How to Get the Most out of your Tax Refund
A tax refund offers you a rare opportunity to improve your financial status. You can use that money to reduce your debt, save some money or just spend it. In 2017, the IRS issued a whopping 119.5 million tax refunds. And the average payout per person was $2,895. According to a GOBankingRates survey of more than 5,000 American adults, one third said they weren’t expecting any tax refunds. This isn’t actually bad news. If you don’t get a tax refund, it means you are managing your financial reporting well. 43% of the respondents stated that they would save the money while another one third of those expecting a refund stated that they would use that money to pay off some of their debts. Only 5% of the respondents said they would use their tax refunds to splurge or go on a vacation. Here are our tips on what we think you could do to get the most out of your tax refund:
Add to your emergency fund
According to a study conducted by Bankrate, while a large percentage of Americans – 88% – to be exact, said they kept budgets, only 38% said that they had enough saved to handle emergency situations. Most respondents said that they would need to borrow money to cover such emergency costs. The best way to ensure you have enough saved up for a rainy day is by building a savings plan into your budget. Using your tax refund to build your emergency fund can go a long way in building that buffer that will keep you financially stable even during emergencies.
Reduce your debt
One of the biggest leaks in a person’s finances is debt. Especially credit card debt. In fact, financial advisors actually recommend focusing on reducing or paying off credit card debt before other loans.
Fix Your Home
Make home improvements. Most people don’t realize that improving the functionality of your home can actually be very beneficial for you. For example, replacing energy consuming older appliances with newer, greener ones will cut down your energy costs and save you money in the long run. A home improvement project will not only improve the functionality of your house, it will also increase the value of your home if you decide to sell.
Take a Vacation with your tax refund
Don’t forget to spend a little bit of this windfall on yourself. Reward yourself for a job well done – in moderation. Use that money to plan a well-deserved vacation. A lot of times, we wait till the last moment to take a vacation. Which means we either end up spending too much money to go on vacation and end up further in debt, or we don’t go at all because those last minute plans are just too expensive. If you plan for your vacation well in advance, you will save a lot of money and get the time out you need.