I went to my local outlet mall today and noticed that almost every store was having an incredible sale. It was impossible to find a parking space — the place was packed. It occurred to me that this was no coincidence. People were there spending their tax refund money, and stores were making it easy with hard-to-resist sales. There are smarter things to do with your refund check than update your wardrobe. Use your tax refund to boost your financial well-being.
The first thing to do upon receiving your refund is to budget every penny of it. Make a list of things you will use the money for. Assign a dollar amount to each item on the list, and stick to it.
Without a budget, it is easy to blow through any amount of money and not really know where it went. This way, you’ll be able to account for what you spent and where.
Pay Down Debt
CBS News reports that nearly half of Americans have more in credit card debt than in savings. If you have any credit card debt, use your tax refund money to pay it down.
Don’t have any credit card debt? Great! Use your refund money to pay other debts you may have, such as student or car loans. You’ll have more money to save each month if you eliminate bills from creditors. Plus, owing less money means it’ll be easier to pay your bills on time. Pay your bills on time and improve your credit score.
Make an Extra Mortgage Payment
I used my tax refund this year to make an additional payment on my home mortgage. An extra mortgage payment goes toward the principal, or the amount owed, on your home. The amount of interest that you pay is calculated based on the principal. Therefore, the lower the principal amount on your mortgage, the less interest you will pay over time.
If you have refund money left over after you’ve paid your debt, use it to build up your savings account. You should work on saving up an emergency fund. Financial guru Dave Ramsey says that a fully-funded emergency fund should have 3 to 6 months worth of personal expenses set aside in a savings account.