Last year the average tax refund was over $3,000. Cash in your pocket + no plan = money disappearing…FAST. Make a plan for your refund before it’s in your hands. Here are our five recommendations for smart ways to use your tax refund this year.
1. Catch up on past-due bills
Have you fallen behind on your car payment, utilities or maybe even your rent? Catch up! And once you’re caught up, make a plan (a budget!) so you don’t fall behind again. Making your payments on time every time (especially your debt payments) will only do good things for your credit score.
2. Save for next semester
You may think it’s too early to plan for next semester…but it’s not. Use our Semester Budget tool to start planning how you’ll make it financially through next semester. Use a portion of your refund to help cover your tuition and fees, books or even living expenses. You may have to put this money aside so you’re not tempted to use it. Consider opening a new checking or savings account at your favorite financial institution and leaving it alone until next semester is upon you.
3. Make car repairs
Chances are if you live in Austin or the surrounding area you rely on your car…a lot. Get up to date on an oil change. How are those tires? Are there any other repairs you need to make, or any proactive maintenance items you can address now, that will save you an emergency during finals week?
4. Build your emergency fund
How much do you have saved for emergencies? We recommend setting a goal to have an emergency savings account of at least $1,000. Sound like a lot? You can get there by saving $50 a month for 20 months (just short of 2 years!) or you can save a chunk of your refund and get to that goal faster. Just like what we recommended in #2, keep your savings separate from your spending funds so you’re not tempted to touch it.
5. Pay down debt
Once you’ve built your emergency fund tackle your debt. While it defies conventional wisdom, we recommend tackling your smallest debt first (not your debt with the highest interest rate.) Why? The momentum and sense of accomplishment you get from wiping out debts will motivate you to tackle the next debt!
Don’t pay to get your taxes done! Keep more of your refund in your pocket. See our recommendations for free tax preparation.