If you are getting a tax refund this year then you have a perfect opportunity to improve your financial situation. The average refund issued by the IRS in the 2019-filing season was $1,949, which is a nice bit of money to put towards your financial goals! Here are some spending and budgeting tips on how to best spend your 2020 tax return.
1. Pay Down Credit Card Debt
The average credit card debt in the United States is close to $9000, with the average interest rate coming in at 21.26% for standard family households. Paying down one or multiple of your credit cards reduces not only the balance but also a large amount of interest that will be paid over time. Just remember not to go on a crazy shopping spree with your credit card after paying it down!
2. Start an Emergency Fund
Unfortunately, it could happen to any of us at any time. A car breaks down, a lay off, the a/c in the house stops working, whatever it could be you don’t want to be left hanging trying to replace everything with a credit card or having to get a loan. Even a modest amount — as little as $500 — can help soften the blow of typical unexpected expenses. If you already have an emergency fund, give yourself an extra boost toward reaching that three-to-six-month-living-expenses recommendation.
3. Invest
Investing can provide you with another source of income, help fund your retirement or even get you out of a financial jam in the future. Above all, investing helps you grow your wealth — allowing your financial goals to be met and increasing your purchasing power over time. You have many ways to invest — from very safe choices such as CDs and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as growth stocks, S&P 500 index funds and REITs. That’s great news, because it means you can find investments that offer a variety of returns and fit your risk profile. It also means that you can combine investments to create a well-rounded and diverse portfolio.
4. Smart Improvements
Does your car need new tires? Or maybe there is an improvement that your house may need. Use your return to get started on some of these improvements. By getting these smart improvements done early it prevents an emergency from happening like a car breaking down or major house issues.
5. Treat Yourself
If you have taken care of everything above then go ahead and award your self! — but do so responsibly. Spend your tax refund on a well-deserved vacation, or buy yourself that flat-screen TV, or smartphone you’ve been eyeing. Just be sure to maintain your fiscally savvy ways by finding the best deal.
Your tax return is a perfect time to get caught up, or even get ahead with your financial situation. Plan smart, spend smart, and continue to be financially successful.
For personalized advice on saving money and getting out of debt, contact DebtBlue for your free, no-obligation consultation. Our team of certified debt specialists can help you make the best decision for your unique situation.