So, it’s no wonder that we think of them when we receive a large tax refund. And some improvements will save you money down the road — allowing your tax refund to make an even greater impact. For example, you might want to replace your old appliances with energy-efficient models.
• An emergency fund is a financial safety net set aside in preparation for unexpected financial hurdles, such as job loss, large medical expenses, or home and auto repairs. • Experts suggest building an emergency fund that can cover three to six months of expenses. • Keeping your emergency fund in a high yield savings or money market account could give you a higher return compared to a traditional savings account.
Create a Budget
A new video game console, a fancy handbag, or a weekend getaway are all enticing options for your extra funds. However, you should consider your financial future and decide if spending your tax refund now will help you in the long run. If you drive a car for a ride-sharing company or a delivery service, your tax refund could put some extra gallons of gas in your tank and fund an overdue tune up. No matter what kind of side hustle you prefer, the extra cash from a tax refund can help give your endeavors a boost and help you make more money in the long term. Brokerage accounts can offer a wider variety of investment options, including stocks, mutual funds, and bonds. You can build a diversified portfolio and grow wealth in addition to the money you might be saving in an IRA or your workplace retirement plan.
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Save directly from your salary so you don’t notice
Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation. Your tax refund isn’t going to get you a new kitchen or bathroom. But it can open the door to smaller remodeling projects that are on your home improvement to-do list. While you shouldn’t necessarily aim to get a large tax refund every year, here are some ideas on how to use your windfall from Uncle Sam.
Another option for using your tax refund is putting it toward paying off your debts. If you have debt from school loans, credit cards, or other sources, creating and sticking to a payment plan is key to maintaining your budget and avoiding accrued interest on your current account balances. We can help you manage your debt with our Look Ahead Calendar℠, a Huntington tool that lets you see upcoming transactions and helps you plan for them. Organizing your payments into a calendar gives you a way to visualize your finances, anticipate large bills, track spending habits, and monitor your debt. Your tax refund is a perfect opportunity to make a larger than usual payment on your debt. If you set aside a certain allowance every month to pay toward debt, adding your tax refund in part or in full can help you pay off the amount due faster than planned.
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At a minimum, have a fund that covers your basic living necessities – mortgage or rent, utilities and groceries. According to the Bureau of Labor Statistics, that amounts to $1,800 a month for the average https://turbo-tax.org/ household. Yours could be lower or higher depending on where you live and the number of people in your household. Build in extra funds if you can for job search expenses or health-related emergencies.
While the service focuses on people 50 and older with low or moderate incomes, anyone is eligible for help. The I.R.S. offers its Volunteer Income Tax Assistance program, or VITA, for people with incomes of $60,000 or less, as well as those with disabilities or who speak limited English. If you spend down what’s in your emergency savings, just work to build it up again. Practicing your savings skills over time will make this easier. It’s a good idea to be mindful of your balances, however, so you don’t incur overdraft fees if there’s not enough money in your checking account at the time of the automatic transaction.
You’ve spent an entire year living off your salary, paying your bills and enjoying your lifestyle. And at the end of the year, if you’ve been paying more than your fair share of tax, you might be lucky enough to receive a tax refund from the Government. After receiving their tax refund, the first thing most people do is spend it on electronics or holidays you don’t really need. Rather than doing this, if you are lacking in terms of emergency savings, simply transfer your tax refund straight into another account – where it can stay for a rainy day.
- After buying a house, paying for your child’s college education may be one of the largest investments you’ll ever make.
- “With your emergency fund, if you’ve got it and you need the funds, use it.
- Building a sufficient cash buffer like this can go a long way toward helping you to avoid racking up debt if your finances hit a snag.
- You could splurge a little—or you could use the money to fund some of your financial goals.
- Choose one of these smart money moves and make a big impact on your financial future.
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If you’ve noticed problems with systems like plumbing, air conditioning or faulty electrical wiring, make it a priority to address these issues so you’re not faced with unmanageable expenses down the road. Also take care to repair structural issues like cracks in your walls and a leaking roof before they result in water damage, mold, mildew, etc. Simple upgrades like new siding and window replacements also tend to be good investments when it comes to resale value. For an overview of home upgrades that rate among the highest in a cost versus value analysis, check out “Which Home Improvements Pay Off” from HGTV. If you want a basic checking account with no monthly maintenance fee, or an interest-earning checking account, we’ve got the options that are right for you. Rather than wait for a refund next year, don’t build one up in the first place by letting the IRS dip too deeply into your paychecks.
Healthy habits for a long life
In addition to employer-based contributions for retirement, you may have an option to split your paycheck between your checking and savings accounts. If you receive your paycheck through direct deposit, check with your employer to see if it’s possible to divide it between two accounts. If you’re tempted to spend your paycheck when you get it, this is an easy way to put money aside without having to think twice.
- Choose to spend your tax refund only on necessary purchases instead of impulse buys or shopping sprees.
- The I.R.S. offers its Volunteer Income Tax Assistance program, or VITA, for people with incomes of $60,000 or less, as well as those with disabilities or who speak limited English.
- Setting up a college funding account with your tax refund may ease the future financial burdens of an education.
- For the most cost-effective way to knock out credit card debt, pay down your card with the highest interest rate first, while making sure to make the minimum payments on your other cards.
Emergency funds create a financial buffer that can keep you afloat in a time of need without having to rely on credit cards or high-interest loans. It can be especially important to have an emergency fund if you have debt, because it https://turbo-tax.org/how-to-use-your-tax-refund-to-build-your-emergency/ can help you avoid borrowing more. Boosting your retirement savings even by a small amount when you’re young can make a big difference by the time you retire. Consider adding to your 457 plan or contributing the refund to an IRA.
Add it to your retirement savings, or jumpstart your retirement plan
If you’re able to contribute $265 a month (or $3,200 a year, which is the average amount of many family’s tax returns each year), your child will be well on his or her way to saving for college. To get the highest APY, banks used to offer tiered balances to encourage customers to put all their money in a single institution. But now online banks, generally, offer the best APYs and require low or no minimum balance in return. There are several online banks with competitive yields that have no or low minimum balance requirements.
- You might also consider using a robo-advisor, which helps build an investment portfolio based on your goals and risk tolerance, but charges a much smaller fee than traditional financial advisors.
- Just 45% of respondents say they currently have an emergency fund, according to the CNBC Your Money Financial Confidence Survey, conducted in partnership with Momentive.
- The months in bold highlight the cumulative quarterly expenses, and therefore, the recommended cash reserve for the average household.
- Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
- Once you know your total expenses for each month, multiply that number by three.