What Should I Do With My Tax Return?

Congratulations! You got through tax season, and you are getting a return from the government! This means you overpaid your taxes in the past year or received tax breaks. Now, what should you do with this newfound money? Here’s a couple of ideas.

Turn It Into A Down Payment

Got your eyes on a big purchase this year? Like a house or car? Most people can’t outright make a purchase that large without taking out a loan. To increase your chances for approval, you need a steady income, a good credit score, a decent debt-to-income ratio, and a down payment.

A down payment is money you have upfront. This tells your financial institution you won’t need to borrow as much and shows you are “good for the money.” With your tax return, you can take your lump sum and apply it to a future purchase as a down payment!

Grow It With A Savings Certificate

With a savings certificate, you can lock your money in and grow it with an APY interest rate for a certain length of time or term. If you open a savings certificate with your tax return, you can grow your money with the monthly dividends.

Oftentimes, you can get a higher interest rate (which is what you want when it comes to savings certificates or savings accounts) with a credit union rather than a large bank.

Create An Emergency Fund

Do you find yourself knocking on wood to hopefully avoid precarious situations, such as emergencies? Emergencies can range from losing a job to making necessary repairs for your home. If one of these things happened, would you have funds set aside to make it by? If you do, great! If not, you can put your tax return into a savings account that you have easy access to and create an emergency fund.

By having this money tucked away, you can be prepared for the unexpected and avoid tapping into a credit card or taking out loans.

Pay Off Debt

Too much debt can become overwhelming. With your tax return this year, breathe easier and apply the lump sum to your debt. If you do, make sure you pay it strategically – either by the snowball or avalanche method. The snowball method applies the money to the smallest amount of debt so you can pay it off sooner. The avalanche method puts your extra money towards the debt with the highest interest rate, saving you more money in the long run. Learn more about these debt payoff strategies here.

Invest In Your Future

Have you tried taking the plunge into the investment market but lack the funds? With your tax return, you can jump in and make long-term investments for your future. Or, you can move the funds into a retirement savings account like a 401(k) or an Individual Retirement Account. Either way, early investments now can make a huge impact on future you!

Reward Yourself!

You have worked hard and deserve a vacation. Have a little fun with one of these budget-friendly spring break vacation ideas. This allows you to get away without spending it all. With the money left over, you can put it in a Vacation Club account so you can save the rest for next year’s vacation!

So, how do you plan on using your tax return? Reflect on your financial goals for the year ahead, then make the best informed decision!