Smart Ways to Spend Your Income Tax Refund
Save it. Ideally, you should save about 40% of your income tax refund. Place it in a safe savings vehicle, such as a savings account or time deposit (i.e. Certificate of Deposit). If you haven't already built up your emergency fund (three to six months' worth of living expenses), your income tax refund should be used to help boost that fund.
Pay down revolving debt. Use about 30% of your refund to pay down revolving debt, such as credit cards. Even if you can't pay off the entire credit card balance, every little bit helps, and a lump sum from your tax refund will be just the boost you need to help pay down your balances.
Invest it. About 20% of your income tax refund should be invested-either for yourself or for your child/family. Invest in a low-cost mutual fund or a 529 savings plan for your child's college education. Even though you're only investing about 20% of your refund, with proper research, planning, and just a little bit of luck, this investment can grow in the future.
Donate it. There's no fun in getting an unexpected tax refund if you don't at least share some of it with others. Make a donation to a worthy cause and allow your refund to do some good for others. Try to donate about 5% of your funds.
Treat Yourself. Last, but not least, you deserve to freely enjoy your tax refund after all your hard work during the year to make an income, and discipline to save, pay down debt, invest, and donate a portion of your refund to others. Take the remaining 5% of your refund and splurge on something (affordable) that you've wanted during the year.
By spending your tax refund in smarter ways, not only are you able to see exactly where your refund has gone, but you'll feel good about where it went.
Published by Sharetha Emanuel
Sharetha is a business professional and freelance writer living in Charlotte, NC. Her business experience includes banking, auditing, and real estate brokerage. Sharetha blogs about the real estate industr... View profile
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