7 Ways to Make Your Tax Refund Count
More than 70 percent of taxpayers received a tax refund in 2018, averaging nearly $3,000, according to the Internal Revenue Service. As you receive your refund you may want to consider how you can spend that money wisely.
Prioritizing your tax refund to create an emergency fund or to pay off debts will help position you for improved financial comfort. Financial challenges can arise quickly and it's critical to have money set aside for those unexpected expenses.
To help you make the most out of your money, we’ve highlighted the following tips:
1. Save for emergencies. Only 40 percent of Americans are positioned to cover a $400 emergency expenditure. You can prepare by opening or adding to a savings account that serves as an “emergency fund”. Ideally it should total three to six months of living expenses in case of sudden financial hardships like losing your job or having to cover car repairs.
2. Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first.
3. Save for retirement, your child’s education or future health expenses. Increase contributions to tax-deferred savings plans such as a 401(k) or an Individual Retirement Account (IRA). Any of our Personal Bankers will be pleased to assist you in establishing an IRA if you don’t already have one. You could also speak with one of our Investment Center Representatives about opening a tax-advantaged 529 education savings plan to ensure school expenses will be covered when your child reaches college age. Or you can save for future health expenses with tax-free dollars by investing in a Health Savings Account (HSA), again with help from our Investment Center.
4. Pay down your mortgage or student loans. Make an extra payment on your mortgage or student loans each year to save money on interest while reducing the term of your loans. Be sure to let us know that you want your extra payment(s) to be applied to principal, not interest.
5. Invest safely with U.S. savings bonds or municipal bonds. The U.S. Treasury allows for savings bonds to be purchased for as little as $50 which earn interest for a maximum of 30 years.
6. Invest in your current home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off both in the short and long term and which provide tax credits, assuming Congress continues to renew the program. If you have more substantial renovations in mind, we can help with a mortgage or a home equity line of credit (HELOC).
7. Donate to charity. The benefit is two-fold: Giving to charity will make a difference in the community and you may also be able to claim a tax deduction if you itemize.
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