While it may not actually be free money, your tax refund is an opportunity to boost your finances.
There’s nothing quite like free money to brighten up your spring after a cold winter. In 2015, the average tax refund was $3,120, according to the IRS. While it may not actually be free money, your tax refund is an opportunity to boost your finances. However, that doesn’t mean you have to spend it all right away.
Take a look at some of these ideas on what to do with your tax refund this year:
Pay Down Debt
Whether you have a creeping credit card balance or student loans, paying down an expensive debt should be at the top of the list when it comes to using your tax refund. You’ll reduce your interest and have peace of mind knowing your debt is shrinking. Check out these other strategies for freeing yourself from debt.
Build Your Emergency Fund
This might not be the most exciting way to use your refund, but personal finance experts recommend keeping at least six months' worth or expenses in a savings account. This will help you be prepared should the unpredictable happen.
Invest In CDs
A certificate of deposit allows you to enjoy higher returns on your money without much risk. While you can’t deposit and withdraw freely, you have options for how long to keep your money in a CD. Terms can be anywhere from a few days to ten years, but the typical options are between three months and five years. The longer you keep your money invested, the higher interest rate you’ll earn.
Invest In The Market
Grow Your Retirement Savings
You have a few options for putting your tax refund toward retirement. You can hide it away in a Roth IRA, where the principal balance can grow tax-free. This is a popular option for many. You could also make additional contributions to your work-based retirement plan, such as a 401(k).
Sure, you’ve had your eye on that shiny new watch or pair of designer shoes, but instead of giving yourself an immediate treat, consider any of these ways to make your tax return work for you. It will really pay off a whole lot more down the road.