Mortgage Advice

5 Smart Ways To Spend or Save Your Tax Refund

March 10, 2016

Tax season presents us with one of the largest sums of cash we’ll receive all year: a tax refund. Although mindlessly spending your refund on clothes, vacations and other “wants” may seem fun, it’s important to spend or save your tax refund intelligently. Take advantage of your chunk of change and put it towards something that will help you financially. Here are five smart ways to spend or save your tax refund:

Use It For a Down Payment
Having enough money for a down payment is sometimes one of the biggest hurdles homebuyers have to jump over on the road to homeownership. With interest rates being so low, and some down payments only requiring 3% down, using your tax refund towards this expense is doable for most homebuyers. If using your tax return is the only way you can afford the down payment for a house, go for it. However, if you have other funds that could go towards a down payment, use them and save your tax refund to pay off debt. Which leads me to my next point… 

Pay Off Debt
Paying off debt is much easier said than done. However, with a little help from your tax refund, some of your debts can be paid down, or entirely off. Whether it’s credit card, student or personal, or mortgage, paying off debt is one of the smartest ways to spend your tax refund. Take a look at your debts and determine which debts financially hurt you the most – largest sum of money, or the highest interest rate – and tackle those first. Make sure you spend your tax return on your expensive money before your cheap money.

Renovate Your Home
Some renovations can add substantial resale value to your home. Think of this as an investment. Home renovations will help you sell your home for a higher price in the future, from remodeling your kitchen or bathroom, to installing new hardwood flooring throughout your house.

Start a Rainy Day Fund
Starting an emergency fund might not sound as exciting as taking a tropical vacation, but it’s a smart way to save your tax refund. You can’t predict the future, and knowing you have a small sum of money stashed away for emergencies will make you breathe a sigh of relief should you ever find yourself in that situation. Once you reach your targeted savings amount, keep going! Watch your money grow as interest accrues.

Add To Your Retirement Account
Most people aren’t saving enough for retirement, so every little bit goes a long way. Putting your tax refund towards your financial future is a great way to utilize the extra cash. Depending on the type of retirement savings you have, the IRS provides tax deductions when retirement contributions are made. You’ll most likely receive a tax deduction if you put the money toward a 401(k) or a traditional IRA, which will benefit you for years to come.

Contact a Ross Mortgage loan officer if you need additional advice on how to use your tax return as a down payment.