5 Smart Ways to Use Your Tax Refund
1. Pay Down Debt
The average credit card interest rate is now over 16.8%, and many credit cards charge rates that are much higher. Paying down credit card and other debt is one of the best ways to use your tax refund. By simply paying off $1,000 worth of debt, you could save hundreds in finance charges in the future.
2. Fund Your Emergency Savings
Provided you don't have mountains of high-interest debt looming over your head, the next thing you should consider is using your tax return to create your financial backup plan. This is an emergency savings account that will allow you to cover unexpected events or expenses such as vehicle repairs, medical expenses, and even a job layoff. If you don't have these savings and are hit with an emergency, you would likely have to resort to using credit cards or personal loans. A good rule of thumb is to aim for having at least three months' salary in this savings account.
3. Save for Retirement
You are already in better financial shape than most if you've wiped out your high-interest debt and have an emergency savings account on hand. If you haven't done so yet, it's a good idea to start setting some money aside for retirement. Use your tax return to open up or contribute to a Traditional or Roth IRA. Even if you already have a 401(k), 403(b), or another employer-sponsored plan, you can open up a Roth IRA provided you meet certain income requirements as defined by the IRS.
4. Invest in Real Estate
Home ownership is a dream for most Americans. If you don't own a home yet and would like to, you can use your tax return to help you achieve this goal. There are many mortgage opportunities that allow for low down payment home loans, so it's a good idea to speak with your mortgage lender about the options in your area.
5. Start a College Savings Fund
College seems to be getting more expensive each year, so it's never too early to start saving for your children's education. Because of compound interest, the earlier you start saving, the less you will need to contribute to a college fund. Speak with your bank about common tuition savings plans, such as a section 529 plan.
Uncle Sam may already be dropping IRS tax refunds in the mail or shooting them straight into your bank account. Come up with a sound strategy for your tax refund now so you won't feel those pangs of financial regret later.
If you're ready to open a feature-packed interest checking account, a savings account for emergencies or college, or apply for a competitive, low-rate mortgage, contact City Bank now to find out how we can help you meet your financial goals.