After paying taxes for 12 solid months, the anticipation of receiving a tax refund can feel very rewarding. But before you let your imagination run away with your refund money, consider these productive, “finance-forward” spending options instead.
Pay off your debt:
Every day you meet other people who are carrying debt. In fact, the average adult has $15,355 in credit card debt and $129,579 in household debt. The key to using your tax money wisely is to pay off the highest cost debt first. This typically translates to mean the debt with the highest interest rate.
Beef up your “rainy day” fund:
No matter how carefully you may plan, life sometimes just happens. This can carry a cost in all kinds of ways, including lost work time due to injury or a sick dependent, job loss due to downsizing, salary freezes or reductions in an uncertain economy. Beefing up your emergency fund is always a smart move.
Take a look at what you currently have in your rainy day reserve fund. Can it cover six months of your non-negotiable family expenses? If not, depositing some of your tax money will provide the financial security every person needs.
Start (or add to) your retirement savings:
Even as people are working (and living) longer, if you are like most people, you are probably looking forward to a smooth transition to retirement. But the only way you can retire is if you can afford to live without working. Paying more attention to your retirement savings now can help you retire more easily later. If you can save a minimum of 10 percent of your salary annually towards retirement, you will be doing yourself a financial favor as you set yourself up for a relaxing post-career life.
Invest in your home and property:
There are plenty of tax credits in place to help you invest in lower future utility bills and higher home resale value. Energy and sustainable tax credits cannot only make the costs of performing home maintenance and upgrades more affordable, but they can also help you reap a greater return on a future home sale.
How are you going to productively spend your tax refund?