Your IRS tax refund may give you the opportunity to clean up your finances that you’ve been waiting for.
While many people will soon be drinking fine wines and eating juicy steaks, the more financially aware among us will use this time of the financial year to sort themselves out. If you’d like to join them, try using your tax refund for the following:
- Handle your debt. Many Americans are struggling with debt right now, and most would be well advised if they used this time to pay off their credit cards.
- Create emergency savings. 40% of Americans cannot afford a $400 emergency expense according to one report from the Federal Reserve Board. There is a reason the board set the amount at $400. If you cannot afford a $400 emergency expense, you will likely find yourself in a lot of trouble if something goes wrong. Start by saving what you can out of your tax returns, and build up your savings from there.
- Boost your 401k. Use your tax returns to boost your employer’s matching contribution. This will effectively net you free money.
- Boost your IRA contributions. You can use a Roth IRA to gain some tax advantages as well.
- Put some money aside for a Health Savings Account (HSA). Every contribution is deductible, and your money can grow tax-free inside an HSA. Beyond that, this account is for your personal health, which takes precedent over everything else. The only catch is that you need a High-Deductible Health Insurance Plan (HDHP) to qualify.
- Put your tax returns into a 529 account for your children’s education.
- Pay down your student loans. Working to remove this burden from your life will save you time and money for more important things.
- Reward yourself. Take this one in moderation, but there is actually an incentive to perform better in future once you treat yourself.
