According to the IRS, the average tax refund for 2012 was $2,803. With tax season just past and the majority of Americans having received money back, what can you do to wisely manage this influx of cash?
Pay down debt
This is not how most consumers want to spend their refund, but paying off your loans will help you save in interest and fees in the long run. Start with your highest-interest-rate loans first. Oftentimes, this will be a credit card. Even though the number of Americans with credit card debt has gone down, the average U.S. household still has $15K in credit card debt. Your payment may only make a dent in the outstanding balance, but will still save you considerable interest on future payments.
Start an emergency fund
Losing a job can be a major financial setback, but there are smaller events that can also cause financial hardship if not anticipated. Set aside some of your refund to pay for that inevitable car repair, appliance replacement or root canal so you don’t have to incur debt to cover these costs. With many families living paycheck to paycheck, regardless of income, an emergency fund can offer valuable peace of mind. Click here to learn more about Core Bank savings accounts.
Prefund your holiday shopping
If you tuck away a portion of your refund today, you can save the pinch of holiday shopping later this year! Just think how much fun your “elv-ing” could be if you already have a stash of cash earmarked just for this purpose.
Contribute to retirement
A 401(k) plan is solid way to plan for the future. While you may not be able to drop your entire refund directly into a 401(k), you can put it in a savings account, set up a recurring transfer to your checking account, and then have your employer increase your contribution by taking out a few more dollars from each paycheck. Because your refund will keep your paycheck at its current level, you won’t even feel the pinch of the increased contribution.
Set up a college fund
It’s never too early to start saving for your child’s education. Many plans allow investment earnings to grow federally tax-deferred. As long as the funds are used for qualified higher education expenses of the beneficiary at an eligible educational institution, the earnings from the account are not subject to federal income tax. Check out this recent blog article about college savings plans, https://corebank.com/simplifying-saving-for-college/.
Get a home energy analysis
For a small fee, you can have your home audited to identify ways to increase energy efficiency and reduce your energy bill. This could prove especially beneficial to owners of older homes. OPPD’s website offers helpful tips on the process, http://www.oppd.com/residential/home-construction/home-energy-analysis/.
Have a little fun
Last but not least: make sure to have a little fun with your tax rebate. Set aside a small portion of your refund to treat yourself and your family. Go to a nice dinner or concert, or visit that local attraction you’ve always wanted to see. You’ll rarely regret spending a modest amount of money to create long-lasting family memories.
April 15 has come and gone; don’t let your tax refund do the same. Spend it wisely and enjoy the benefits for years to come.