A tax refund can be a welcome surprise. But instead of impulsively spending it, consider using it to achieve some of your goals. Whether you're looking to bolster your savings, pay off debt, or invest in your home, your tax refund can be a valuable asset. Here are a few smart ways to use your tax refund to improve your financial future.
Build an Emergency Fund
Creating an emergency fund is one of the best ways to use your tax refund as it provides protection for you and your family when the unexpected happens. An emergency fund can be used to cover household basics such as mortgage or rent payments, food, and utilities if someone in your home loses their job or takes a leave of absence. But it can also cover an emergency, such a medical bill, car repair, or a sudden change in your living situation. If you already have an emergency fund, use a portion of your tax return to add to it for extra peace of mind.
Pay Off Debts
A smart way to use your tax refund is to pay off debts—especially those with high interest rates. While a savings account offers modest interest, eliminating high-interest debt, such as credit card balances, can yield greater returns. Paying off debt with your tax refund can not only reduce stress, but can also improve your credit score by lowering your credit utilization rate. And eliminating the monthly payments will allow you to invest that money into your savings account, or pay extra toward repayment on another debt.
Note: Follow our tips on how to use a credit card responsibly to avoid building up debt.
Put it Toward a Down Payment on a House
If you're working towards the dream of homeownership, your tax refund can be a significant step forward. By adding your refund to your down payment savings, you can accelerate your timeline and potentially qualify for better mortgage rates, bringing you one step closer to owning a home.
Additional tip: If you already own a home, consider using your tax refund to make extra payments on your mortgage principal. This can help you pay off your mortgage faster and save on interest over time.
Make Improvements to Your Home
Though a home equity loan or a HELOC might be more useful for a large house renovation project, your tax refund can come in handy for smaller repairs. Upgrade a kitchen appliance to a model that uses less energy, replace a drafty bedroom window, add new faucets to the bathroom, or repaint the entire first floor—your tax return can fund home improvements that make your house more energy efficient, functional, and attractive.
Start a Business
Starting a business doesn’t mean that you need to quit your day job. A tax return can help you jump start that side hustle you’ve always wanted to try, whether it’s baking wedding cakes, building bird houses, or giving music lessons. Use your tax refund to build up inventory, purchase supplies, design a website, or create an online store.
Note: HFCU offers several small business services that can help your new venture prosper.
Increase Your Retirement Fund
Whether you have an employer-sponsored 401(k) plan, a traditional or Roth IRA, or a different retirement plan, contributing your tax refund is a smart way to invest in your future. Adding extra money from your tax return can not only support your retirement goals, but help you reach them faster. Speak with a member of the Heritage Way: Investment, Insurance and Retirement team for more information on spending your tax return on retirement.
Invest in Your Future
A smart way to spend your tax refund is to make it work for you. Investing in a high-interest money market share account or a term share certificate can help you grow your money over time. Consult with a financial advisor to learn more about your options and the best investment opportunities.
Create a College Fund
The price of a college education continues to grow, as do the debts that many graduates carry afterward. Saving money from your tax refund for college tuition is a smart plan. This can save students today from the burden of loan repayments tomorrow, or at least minimize the amount they borrow. HFCU offers a variety of savings options and resources, such as a college explorer tool, to help you reach your educational funding goals. No matter how young a child is now, saving for college is a wonderful way to prepare for their future.
Pay Down Your Student Loans
If you’re the one who needs assistance with student loans, use your tax return for a bit of help. By making a substantial payment toward your principal balance, you can reduce your overall loan amount and potentially save on interest costs. Before making a large prepayment, be sure to check your loan terms for any potential penalties.
Give to Charity
What better way to start the new year than to give a boost to charitable organizations? Check with local charities and non-profits in your area to discover which one aligns best with your values and passions. Using your tax refund to help your community can bring you personal fulfillment—and you’ll also get a deduction when the next tax season rolls around.
Your tax refund is an opportunity to take control of your finances. Whether you choose to save for a rainy day or give back to your community, remember that every dollar counts. Contact HFCU today to explore solutions that can help you reach your goals.