Finance Globe

U.S. financial and economic topics from several finance writers.
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Five Smart Ways to use your Tax Refund

Are you expecting a refund check from the IRS? How about your state or local taxing authority? If you have money coming back to you in the near future, there is no better time than now to devise a strategy on how you will use the funds.

While some people blow through the money, purchasing something they really don’t need, others realize that the cash can be put to better use.

Here are five of the smartest ways to use your tax refund:

1. Pay off debt. Are you swimming in credit card debt? Are you faced with student loan debt? How about a personal loan? If you have any form of debt, consider using your refund to pay it off or pay it down.

Tip: pay off the debt with the highest rate of interest, as this will save you even more money over the long run.

2. Add it to your emergency fund. If you don’t have an emergency fund or your account is running low, adding a tax refund is a great way to give it a boost. This may not be the most exciting thing to do with your money, but there may come a time down the road when you look back and realize it was a great decision.

3. Put it towards your retirement. For example, you could add the money to an IRA if you have yet to hit the maximum contribution limit. If you have reached this number for the year, consider other methods of saving for retirement, such as purchasing a certificate of deposit (CD).

4. Take on a home improvement project. If you are smart about this, you can improve your home while also adding value to your property.

Tip: you will get the most bang for your buck when you update your kitchen or bathroom.

5. Pay for your vacation in advance. If you have other pressing needs, this is not the best way to use your tax refund. However, everybody needs to have a little bit of fun from time to time. You can use your refund to prepay for vacation, allowing you to setup your trip without having to use your credit card.

Final Tip

If you don’t know what to do with your tax refund, the best strategy is to do nothing at all. Rather than spend this money and regret it later, set it aside until you have a clear plan.
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Monday, 30 January 2023

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