Most Americans receive their tax refund three weeks after they send their return to Uncle Sam’s bean counters. Three weeks is ample time to think of a few ways you’d like to spend that money (73% of Americans have their refund check spent long before the government releases the funds), but the way you would like to spend your tax refund may not be the most financially savvy use of your resources.
If you feel you absolutely must have that new 75” 4K Ultra HD flat screen, we’re in no position to argue. Nevertheless, here are a few ways you can put that money to work so it pays greater dividends over the long haul.
Pay Down High-interest Debt
According to the Internal Revenue Service, the average tax refund is just a hair under $2,800. If you make the minimum payment on $2,800 worth of credit-card debt at an annual interest rate of 18%, using that $2,800 refund to pay off your debt today could save you a lot of money in interest and fees.
Invest in Your Home
Your tax refund probably won’t cover the cost of installing solar panels on your roof. Your tax refund probably will cover the cost of re-insulating your home or installing new hardwood flooring in your study. Neither of those options will be as much fun as using your refund as stake money to enter a poker tournament, but insulating your home will reduce your energy bills, and installing hardwood floors will increase the resale value of your home. Choose wisely.
Jump Ahead on Your Mortgage Payment
Depending on how much you owe on your home, you may be able to use your refund to jump ahead by one mortgage payment, or you may be able to jump ahead by five payments. Either way, the sooner you pay off your mortgage, the less you’ll pay in interest.
Give Your Savings a Boost
If you don’t have an emergency fund to cover a few months worth of living expenses in case something goes haywire with your income, this is the perfect time to start planning for the future. After factoring for lost wages and out-of-pocket medical expenses, a broken fibula will cost you roughly eight-to ten-thousand dollars. Don’t plan on your supplemental insurance carrier smiling while they cut you a big, fat check, either—they stay rich by not paying claims.
Take a Holiday
Your accountant may not agree with us, but sometimes the best thing you can do with your refund is spoil yourself. Maybe you already paid-off your car, your television is almost new, and your attic has plenty of insulation. Maybe, five days in the tranquility of the Maldives is exactly what you need to recharge your batteries. After all, you can’t put a price tag on peace of mind.