If you are due for a refund, you have probably already filed your taxes. But the thinking doesn’t stop there.
The COVID-19 crisis brought stimulus checks, deadline extensions for filing taxes, and a heightened awareness of the need to plan for financial security. So what should you be doing with that money after you file your taxes? Here are some smart ways to consider using that refund money:
1. Pay off debts – Many credit card companies have high interest rates on new credit cards. That could leave you paying a lot more than what you spent in order to pay down that balance. Don’t let interest fees bury you in debt. Use your tax refund to tackle any existing debts you may have. These debts could be in the form of credit cards, student loans, car loans, and more. It might not be the most exciting use of your tax refund, but it’s always a smart financial move.
2. Start an emergency fund – Saving smarter means preparing for the unexpected to occur. Consider opening a savings account that’s designated for emergencies only, like sudden medical expenses or unforeseen complications with your job. Start building now with the goal of setting aside 3 to 6 months of income to see you through a future crisis.
3. Prepare for big future expenses with a deposit program – If you know you’ll need a new car in a few years or want to start saving now for a future home improvement, consider opening a certificate of deposit with your tax refund. By setting the money aside now in a high-interest CD, you can ensure you have the funds available when your next significant expense arrives.
4. Invest – If you’re one of the lucky few to have minimal debts and already have emergency funds and savings plans in place, investing your money is a smart use of your tax refund. There are plenty of new and existing stocks to invest in, so make sure you do plenty of research before putting your money anywhere. Alternatively, you could consult a financial professional to help you make decisions that match your goals and what you have in mind.
5. Give your car or home some love – Your home and car are two of the more important purchases you may make. Wise use of your tax refund could be to put that money towards your home in the form of down payments, mortgage payments, or some of those costly repairs you may have been putting off. Similarly, you could use your tax refund to pay down your car, get repairs done, or put a down payment on a new vehicle.
With these helpful tips in mind, we at AAA hope you’ll be able to put your tax refund to good use. Whether you’re paying down debts, planning for your future, or paying for repairs, we’re confident that you’ll find smart ways to spend your tax refund.
Save smarter this year with help from Discover Bank®* – the only bank that offers AAA members preferred member annual percentage yields (APYs). To learn more about savings, the money market, and CD accounts, visit AAA.com/Deposits or call 1 (800) 347-7056.
*Discover Bank, Member FDIC