The federal tax deadline of Monday, April 15 is just around the corner, and you may be excited about the possibility of receiving a sizable refund. After filing taxes, most refunds will be issued within three weeks. If you’re receiving one this year, it’s the perfect opportunity to improve your financial situation. Data from the IRS shows the average tax refund in 2019 is $3,143.1 Whether you’ll receive less or more, this windfall could make a difference in your future. Consider these three smart uses:
1. Ramp up your emergency fund. Use your refund to build or replenish your emergency savings. You’ll achieve a better sense of financial security by having a cushion for those unexpected events, such as a job loss, illness, an accident, or a natural disaster.
2. Pay off high-interest debt. Have a credit card or loan balance that seems to never go down? By significantly lowering your debt, you’ll be left with paying less interest and having smaller payments. And soon enough, you’ll be moments closer to debt freedom.
3. Contribute to your retirement account. Investing your refund in a retirement account such as a 401(k), traditional IRA, or Roth IRA with potential tax advantages can help create a better position for you in your golden years. In addition, you might be able to deduct some of the contributions on next year’s return.
Whether you spend it or save it, be sure to use it wisely. Remember it’s not free money, it’s money that you’ve earned. Need advice or further guidance on how to best leverage your refund?