How to Budget Your Tax Refund? 5 Tips Will Help
The average American receives $2,881 each year in the form of a tax refund. This year, most people can also expect to receive an additional $1,200 in the form of an Economic Impact Payment, or government stimulus check.
With so much cash coming in, how are you going to effectively budget your tax refund to ensure that you not only stretch the money but also put it to good use? The best way to use your tax refund is to turn around and invest it in yourself and your financial health.
From paying off credit card debt to investing in home upgrades that can increase the value of your home for future payoffs, we’ve got all the details you need to know about how to budget your tax refund to optimize its value.
Best Ways to Budget Your Tax Refund
Pay Off High-Interest Debt
Having an emergency fund is perhaps one of the best things for your financial health at the moment. If you already have about six months’ worth of expenses saved up, however, the next best thing you can do with your tax refund is to pay off any high-interest debt you have as it’s what affects your overall financial health the greatest. Pave the road to financial freedom with your tax return this year and pay off credit card debt as much as you can. If you need a bit extra help paying off one loan in particular, you might be able to benefit from checking out a balance transfer credit card.
Put It Into a High-Yield Savings Account
If you have an emergency fund and don’t have any major debt to pay off, think about putting that state tax refund or federal tax refund into a high-yield savings account. Unfortunately, in this case, interest rates are low right now, which means that most high-yield savings account APYs are at a low as well. But, it’s still a good time to move your money from a traditional savings account to a high-yield account as you’ll earn more on the investment in the long-term. And, when interest rates go back up, you’ll have saved more money to eventually enjoy higher APYs.
Invest in Yourself
As mentioned, the best way to use your tax refund is to invest it back into yourself and your financial health. Spend it in smart ways that improve your life, whether personally or financially, instead of spending it on things that don’t add value to your life. So, think about investing in yourself. Use the cash to take a course that will help you advance in your career, enroll in a college class that will help you learn a highly valuable skill you need to perform better, or use it to participate in a retreat that you need to refresh your mind and gain a new perspective on an issue that’s been troubling you at work or at home.
Increase the Value of Your Home
If you own a home then using your tax refund to make improvements to the property is one quick, easy way to protect and enhance your investment. Not sure how to increase the value of your home? With a couple of thousand dollars extra, you can follow HGTV’s advice to upgrade the kitchen, increase the curb appeal, focus on the appliances in the bathroom, and give the entire house a deep cleaning. Small improvements such as replacing the tiling in your shower or a new coat of exterior paint can go a long way.
Fund Your IRA
Because of the extension of Tax Day 2020, you now have until July 15th to pay your taxes. However, they’ve also extended the date by which you have to fund your IRA. This means that you still have time to meet the contribution limit. Make sure you know which IRA is best to fund, as they each come with their own financial benefits. Funding a traditional IRA means you’re making a before-tax contribution. But, that means you’ll reap the benefits next year with a tax deduction. Either way, it’s a great way to invest back into your future financial health.
Bolster Your Savings for Next Year
Budgeting your tax refund is easy as long as you always ensure you’re putting it to good use. Think about various things that would improve your financial health or life in general and use it for that. Whether that means investing in yourself and learning a fun new skill or paying off credit card debt, it’ll feel good to use it to pave the road to financial freedom in some way or another.
Then, you can begin to think about how to bolster your savings for the next tax year. Our suggestion? Try the Cheese Debit Card. Our FDIC-insured card can earn you a lot by cashback and saving bonus. Saving money doesn’t get easier than that, which means you’ll have lots of extra cash left over to work with when you’re figuring out how to budget your tax return next year, too. Interested in learning more? Sign up today.