As soon as you get money in your hands, the sooner you’re bound to spend. Here are a few ways you can use your tax refund to make it work for you financially!
1. Create an emergency fund
Many Americans don’t have an adequate savings account accessible in case of a sudden financial need. A lack of savings leaves you vulnerable to a job loss, medical emergency or major repair and can force you to seek out short-term loans at high interest rates or carry credit card balances for an extended period.
2. Send it to savings
The IRS allows you to split up your refund in up to three accounts via direct deposit. That’s a perfect opportunity to stash some funds in a savings account that’s inconvenient for you to access, assuring that the money stays out of sight and out of mind until you really need it. If you maintain an account at a bank near a former residence without a branch nearby, augmenting your balance there can keep it safe from impulse buys.
3. Pay off debt
If you are carrying a credit card balance, consider using your tax refund to pay that off.
4. Fund your retirement
What better way to sock money away for retirement than by using funds that aren’t a part of your paycheck anyway? You can use the funds to purchase or augment a Roth or traditional IRA, which sequesters your money away for when you’re no longer on the job.
5. Look to the future
You’re not the only one who needs to prepare for retirement. Your kids can also start to plan now. Given the power of compounded interest, starting young is the best approach for well-funded golden years. Your child is allowed to contribute up to $5,500 for an IRA as long as she has that much earned income.
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