So, you have a tax refund coming your way? Or maybe you already received this money from the IRS, state, and/or local tax authority. In this case, you have a big decision: what will you do with the money?
While some people immediately spend the money, others realize that it’s probably in their best interest to save. But this leads to another question: what is the best way to save a tax refund?
There are a few options to consider, with these three among the best:
1. In a savings account. If you have a savings account of any kind, this is often the best place for a tax refund. The money is safe and it will be there if you need it in the future.
2. Invest it with hopes of growth. This may not be your idea of saving, since there is some risk involved, but it’s an option to consider nonetheless. For example, you could invest the money in an IRA. If this is too risky for you, maybe because you don’t know what to invest in, opt for a certificate of deposit (CD) instead.
3. Cash. Obviously, this depends on the size of your tax refund. There is a big difference between saving a few hundred dollars in cash and a few thousand. If you are the type of person who likes to have access to a little bit of cash, a tax refund can fund this lifestyle.
These are just three of the many ways to save a tax refund. With each one, you need to consider the pros and cons.
The nice thing about saving is the long term impact it can have on your finances. When you look back in the future, you will realize this was one of the best decisions you could have made.