Pay down debt
This is not how most consumers want to spend their refund, but paying off your loans will help you save in interest and fees in the long run. Start with your highest-interest-rate loans first. Oftentimes, this will be a credit card. Even though the number of Americans with credit card debt has gone down, the average U.S. household still has $15K in credit card debt. Your payment may only make a dent in the outstanding balance, but will still save you considerable interest on future payments.
Create a contingency fund
Losing a job can be a major financial setback, but there are smaller events that can also cause financial hardship if not anticipated. Set aside some of your refund to pay for that inevitable car repair, appliance replacement or root canal so you don’t have to incur debt to cover these costs. With many families living paycheck to paycheck, regardless of income, an emergency fund can bring you more financial satisfaction.
Consider keeping your emergency funds in an online savings account, which usually offers higher interest rates than traditional savings accounts, but still provides quick access should you need to tap into the funds.
Though the economy is improving, there’s always a chance you or your spouse could suffer a job loss. It’s not pleasant to think about, but it is prudent to prepare for such an event. While experts recommend having at least three months of liquid savings on hand, recent unemployment lengths have averaged closer to six months, so save as much as you can.
Consider how to improve your chances of finding a new job if you were to be laid off. Applying your tax refund to job training, continued education, attending a conference or even investing in a new suit for a job interview are all ways to increase your chances of getting hired.
Contribute to retirement
A 401(k) plan is the easiest way to make a guaranteed return. While you may not be able to drop your entire refund directly into a 401(k), you can put it in a savings account, set up a recurring transfer to your checking account, then have your employer increase your contribution by taking out a few more dollars from each paycheck. Because your refund will keep your paycheck at its current level, you won’t even feel the pinch of the increased contribution.
Set up a college fund
It’s never too early to start saving for your child’s education. Many banks have accounts specifically for kids that offer generous savings rates. You may also consider depositing funds into the Utah Educational Savings Plan (UESP), a non-profit trust fund offered by the state that allows investment earnings to grow federally tax-deferred. As long as the funds are used for qualified higher education expenses of the beneficiary at an eligible educational institution, the earnings from the account are not subject to federal income tax.
Get a home energy audit
For a small fee, you can have your home audited to identify ways to increase energy efficiency and reduce your energy bill. This could prove especially beneficial to owners of older homes. Questar Gas is currently offering home energy audits for $25, which is refundable if you follow through on the audit’s recommendations.
Have a little fun
Last but not least: have a little fun with your tax rebate. Set aside a small portion of your refund to treat yourself and your family. Go to a nice dinner or concert, or visit that local attraction you’ve always wanted to see. You’ll rarely regret spending a modest amount of money to create long-lasting family memories.
April 15 has come and gone; don’t let your tax refund do the same. Spend it wisely and enjoy the benefits for years to come.