8 Smart Things to do With Your Tax Refund

Smart Things to do With Your Tax Refund

It’s Tax Season, and while you may not like doing your taxes, you’ll certainly like the refund that comes with them. Although the average refund was reduced with the tax changes that took effect last filing year, those who typically received a refund will likely find themselves with an extra few thousand come tax time. Here are 8 smart things to do with your tax refund.

1. Pay Down Debt

If you have any debt, the first smart thing you should think about doing with your tax refund is to pay it down. Paying down debt helps to increase your cash flow, reduce your liabilities, and puts you in a better position to withstand any hardships. Having little to no debt also gives you more buying power to spend money on the things you really need/wan

2. Build an Emergency Fund

If you’re lucky enough to be debt free, or have low interest debt, the next smart thing to consider doing with your tax refund is starting an emergency fund.  An emergency fund is money saved for covering emergency and unexpected expenses in order to avoid using credit in these situations.

3. Save for Retirement

If you feel good with your debt situation and have a good emergency fund built up, the next smart thing to do with your tax refund is to save for retirement. Most people are saving too little for retirement or have nothing saved at all. Even though saving for retirement can be confusing and scary, it’s important to start as soon as you can.

4. Start a Sinking Fund

If your finances are in order, yet another smart thing to do with your tax refund is to start a sinking fund. A sinking fund is a bit like an emergency fund, but in this case the account you’re funding is to help you prepare for a known or desired expense.

5. Invest

Once your finances are in order you can begin to really branch out with your tax refund. Thus, the next smart thing you can do with your refund is to invest.  Thus, investing might mean in the stock market by opening or contributing more to a brokerage account.

6. Save for a Down Payment

We’ve covered the smartest things to do with your tax refund for the average person, but if you already have those things covered there are a few other things you could put your tax refund toward.  Are you looking to buy a house? If so, putting your tax refund toward a down payment is another smart choice.

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