5 ways to get the most out of your tax refund
According to the Internal Revenue Service, 8 in 10 Americans receive a tax refund each year. The chart below from CNN Money outlines the average refund people receive based on income bracket:
While grand thoughts of upgraded televisions and vacations may immediately come to mind when you receive a large lump sum of money like your tax refund, there are also ways you can use it to help achieve long-term financial health. Here are five ideas for how you can take your tax refund and invest it in your future.
1. Save it. According to a recent survey, 69 percent of Americans have less than $1,000 in savings and 34 percent have no savings at all. Create a long term savings goal — like putting a down payment on a house, saving for retirement or saving for your child’s college education — and use your refund as a base to achieve that goal.
2. Pay down debt. The average U.S. household has about $16,000 of credit card debt. If you have an outstanding balance on your credit card, student loans or any other kind of debt, you could use your refund to pay down part, or all of it. Paying down debt now saves you money down the road. For example, the average interest rate on a credit card in the U.S. is about 15 percent. Paying off your credit card now is like paying yourself that 15 percent in the future.
3. Invest it. Meet with a financial advisor and find an investment portfolio that fits your goals. Investing money in stocks and/or bonds can lead to a high long-term return on your investment.
4. Pay for your education. One of the best investments you can make is in your own education. The world is always changing and to remain competitive, it’s important to keep your skills up to date. Sign up for a college course, or for a certification, to help grow your earning potential in the long run.
5. Make home improvements. One way to put your refund to work: invest in home improvements to help lower your bills. Buy new energy efficient windows that retain more heat in the winter. Install a new furnace that uses heat more efficiently. Upgrading now can save you big money in the long run. Making these improvements can also increase your refund because there are tax credits associated with energy saving home improvement.
You have many options when it comes to your tax refund — anything from saving or investing to paying off debt. With a little extra time and trusted financial advice, you can put it to good use and help improve your life.