What's not to love about receiving money? It's why millions and millions of people play the lottery each year. And while most won't be lucky enough to win the jackpot, they may very well receive money in a far more common way — getting a tax refund.
For some Americans, tax time is a time of excitement as they wait for a check in the mail or an electronic bank account deposit from Uncle Sam due to overpayment of their taxes. Because this money is often considered extra money, many people will use the funds to splurge — maybe take a vacation or install a big screen TV. But while those may be considered fun purchases, the excitement of having them often wears off pretty quickly.
If, however, you use your refund wisely, you can take advantage of long-lasting benefits. Here are some great suggestions for putting your tax refund to work for you all year long:
- Build an emergency fund. In these challenging economic times, many people live paycheck to paycheck. That makes managing unexpected expenses, such as car or home repairs difficult to manage. One way to protect yourself from unexpected expenses or losses in income is to have an emergency fund in a liquid savings account.
- Reduce debt. Do you have higher-interest credit card, auto loan, or other debt? Consider using your tax return to pay down your debt. It's always wise to pay off the highest-interest debt first.
- Make home improvements. Does your home need new windows or a new roof? Consider using your tax return money to finance these important home improvements, which can add value to your home.
- Make an energy-efficient purchase. Use your refund to purchase energy-efficient appliances, such as a dishwasher, dryer, or refrigerator, which can save you money all year long.
- Start a college savings plan. If you have children, consider using the funds to open an Education IRA or 529 college savings plan. Once you open the plan, arrange to invest in the fund on an ongoing a basis. Even a small amount of money each month will add up over time.
- Save for retirement. If you don't have a retirement plan through your employer, consider opening an Individual Retirement Account (IRA) with your refund check. Be sure to check with your tax adviser first.
- Pre-pay your mortgage. If you want to reduce the term of your loan and the amount of interest you will pay over the life of the loan, consider putting the funds from your tax return down on the principal of your mortgage.
The decision on how to best use your tax return depends on your unique financial situation. However, if you choose any of the options above, you're sure to win.