Have you recently received a large amount of money due to a tax refund? Do you have money sitting in your bank account and you aren’t sure what to do with it? Do you finally have what you’d call a “real” job?
If so, there are many things you may want to do with your money now that will earn you a congratulatory drink from Future You.
There are many benefits to saving and even spending that tax refund and all of this depends on what your current and future goals are.
Here are the best things to do with your money now.
1. Figure out the best ways to use your tax refund
Have you received your tax refund or do you expect to receive it soon? If so, you’re probably wondering what you should do with that money.
With the average refund of $2,860, it leaves plenty of people with wondering how they should spend their money, if at all.
Instead of spending that money on things you don’t really need, you may want to opt to doing other things such as:
a) Set money aside in an emergency savings fund
If you do not have an emergency savings fund already, this is one of the first things you should consider doing with your tax refund.
Emergency savings funds are crucial for several reasons. Many of us don’t expect something to happen where we’ll need the money (medical bills, pets being sent to the vet, major house or car repair, so on).
So what happens when an event like that occurs? An emergency savings fund can relieve the stress and keep peace in mind knowing that if anything unexpected were to occur, it would most likely be covered with the emergency fund.
A good amount to have saved in an emergency savings fund is roughly 3-6 months of expenses, in case a job has pay cuts or is lost entirely.
b) Pay off student loan debt
Paying off student loan debt ahead of time with your tax refund is incredibly smart for several reasons. You can pay off interest that has accrued since you’ve been in school or graduated, and that interest will stop capitalizing. Your overall student loan debt will be paid off quicker which means less interest owed.
Your tax refund can potentially put a huge dent into what is left on your student loans. This can potentially lead to saving hundreds, possibly thousands in interest accrued.
c) Mortgage
Putting extra money toward your mortgage can be a great way to save money. Making extra payments to your mortgage can save a lot of money down the road since mortgages usually carry a lot of interest since it is a long-term loan.
d) Pay off credit card balance
Paying off your credit card balance with your tax refund can help relieve stress and overall debt you owe. Credit cards often have high interest rates, which may make sense for many to opt to put their tax refund toward their credit card balance instead.
e) Retirement fund
Setting up a retirement fund or contributing to a fund is a great option for those that want to plan for their future. Setting aside money in a retirement fund instead of spending a tax refund on shopping will feel like a much better idea down the road.
f) Sometimes, spending the money is a good idea
There are many essentials that can be covered with a tax refund, such as getting a yearly physical if you don’t have health insurance, going to a dentist for a teeth cleaning, getting your car checked out for that strange noise it’s making, and more. These are special occurrences when spending can actually lead to saving down the road
2. Pay off your high interest rate debt
Before paying off any debt, you’ll want to make sure you figure out which loans or debt have the highest interest rate. Paying off loans with high interest rates will save you the most money instead of paying off a loan with a lower interest rate.
It’s important to figure out which loans have the highest interest rates and work down from there. This is why it is important to keep track of your debt and the interest rates tied to the debt.
If you’re having trouble staying on top of your student loan payments, you may want to consider refinancing your loans. Re-financing your student loans may be a good idea if you have other loans with higher interest rates. By refinancing your student loans, you may have the ability to focus on other debt that you would rather pay off first. Or, maybe you’re interested in buying a home or a car. Refinancing your student loans can leave you with more wiggle room to focus on those purchases.
Getting a large amount of money at once, such as a tax refund may make you question what course of action is the smartest. This ultimately depends on your goals. Figuring out a plan ahead of time before receiving money is wise since you will not feel overwhelmed all at once. Instead, create a plan that will make you the happiest.
Would you prefer to have more money saved into your retirement? Or would you rather pay off your student loan debt? What you do with your money now can have a profound impact on your finances in the future, which is why it is wise to make smart decisions now.
