If you got an unexpected windfall from Uncle Sam this tax season, the temptation might be to splurge on a vacation or finally buy the new couch you’ve been eyeing. We get it, we feel that urge too. But smart spenders know there are better ways to use those refund dollars to set yourself up for future financial success. Here, we’ve rounded up six savvy ways to use your tax return.
1. Pay off high-interest debt
The best, most responsible thing you can do with your tax return is to pay down — or pay off — any high-interest credit cards, private student loans or other high-interest debt. Lower monthly payments will free up additional funds in your budget, allowing for more financial flexibility and potentially less money-related stress. Bonus: paying down debt can also improve your credit score. .
2. Put it in a high-interest savings account
Put your tax return to work making extra money by depositing it into a high-interest savings account. Look for an interest rate above 5 percent with minimal to no fees. Keep in mind you’ll have to pay taxes on interest income over $10 the following year, but it’s a small price to pay for a growing bank account.
3. Invest in a college fund for your kids
The stats are jaw-dropping: in the next 15 years, college costs could top $50,000 per year for public institutions and $100,000 a year for private schools. Get a strong start by investing your return into a college savings account. A 529 plan features low fees, and many states include a tax break on contributions. Plus, it’s easy to set up automatic transfers as low as $25 a month to keep the momentum going.
4. Put it into an emergency fund
You never know what unexpected expenses lurk on the horizon. From medical bills to car and home repairs to job losses to immigration fees, life is full of curveballs that can quickly deplete your bank account. Experts recommend an emergency fund of three to six months of monthly expenses. Start — or add to — your fund with your tax return, and you’ll feel less stress when those surprise bills appear. And if you want to learn more about setting up an emergency fund, we’ve got you covered with our guide here.
5. Follow your career dreams
Now might be the time to take that leap and start the business you’ve dreamed of running. Or maybe you’ve been wanting to take a class that will bring you to the next career level. Some career goals need a financial boost, and an unexpected tax return could turn into a career investment, allowing it to potentially pay dividends well into the future. Keep in mind some work-related career expenses can be tax-deductible.
6. Send money to loved ones
With a little extra money on hand, it might be the perfect time to send more back home. Pangea makes it simple and safe to send money to loved ones abroad. Deposit the money into their bank account or debit card, instantly pay bills from major utility companies, or send it to one of thousands of convenient cash pickup locations. With our instant transfers, your family won’t have to wait days — and with our direct deposit options, they won’t even have to wait in lines!
