It’s that time of year when you may be looking forward to receiving a federal or state tax refund. It can be difficult to figure out what to do with those dollars, especially in this economic environment. What you do with your tax refund depends upon your financial situation and future goals. Here are some ways to make the most of your tax refund:
- Pay down debt. Use a portion of your refund to pay down high-interest credit card debt. This will help to deter you from adding to any debt you’re trying to pay off and automatically puts you in a better financial position.
- Save for the future and emergencies. These challenging times are providing reasons to work harder at saving money. If you can allocate a portion of your refund to your savings, you will be adding to any cushion you already have and putting yourself at an advantage for handling future occurrences—especially unexpected ones.
- Contribute to an IRA. If you don’t already have an IRA, consider starting one. This is an opportunity to maximize the dollars you put in and build your wealth. With certain IRAs, you can withdraw your original contribution without being penalized. Before making a decision to start an IRA, it’s best to speak with a financial advisor to gain a better understanding of your options.
- Invest in educational or career development. Whether you have a job or are looking for one, using some of your refund to further your education or advance your career can pay off in both the short and long term. The competitive job market can be motivation to strengthen your skills and make yourself more marketable. Ways you can do this include taking continuing education classes, signing up for training seminars, or obtaining licensing specific to your field.
- Refrain from borrowing. If you are thinking about borrowing against your expected tax refund, try to resist that temptation. This refund-anticipation loan (RAL) can be costly, and you can incur late fees if it’s not repaid on time.
To help make the best use of your tax refund, think in terms of your future and the steps you need to take to reach your goals.
