The American Bankers Association (ABA) estimates that three-fourths of Americans got a refund from the government this year. And if you aren’t sure how to make the most of that refund, they offer five ideas for putting your tax refund to best use:
- Sock it away in savings. The ABA recommends that people keep three to six months of living expenses on hand in an emergency fund. If you don’t already have a high-yield savings account, now is a good time to open one. Use your tax refund to start that nest egg, or add it to your existing savings account. If something comes up, like illness, job loss, or a major home repair, you’ll be ready.
- Pay down debt. If you have credit card debt or high-interest loans, using your tax refund to pay off all or part of it is a smart move. There are two ways to go about this: you can start with the credit cards or loans that charge the highest interest, or you can knock out the smallest balances first. Either one will benefit you by helping you be debt-free faster.
- Contribute to your retirement fund. If your employer offers a 401(k) savings plan, you can add your tax refund to it and maximize your retirement savings. If not, you can set up an Individual Retirement Account (IRA) through your bank. The more you save now, the better off you’ll be when you retire.
- Bring your home ownership dream a little closer. Coming up with a down payment is the biggest hurdle most potential homebuyers face. If you’re looking to buy your own home sometime in the future, put your tax refund in a savings account dedicated to a future down payment. Make sure the down payment account offers the best return. Ask your bank which savings accounts offer the highest-yield interest.
- Upgrade your current home. If you already own your home, you can increase its value by using your tax refund. Make improvements that are a smart investment as well as increasing your quality of life, like upgrading your appliances to energy-efficient models.
Putting your tax refund to good use instead of blowing it on things that won’t last will pay off down the road, advised the ABA.
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