News and Events > 6 Great Ways to Use Your Tax Refund
For most Americans, the biggest windfall of the year is their federal income tax refund. Refunds average about $3,000, and it might be tempting to spend that money on a giant TV or a pair of tickets to Europe.
But there are better ways to put that money to use. Here are some examples.
1. Eliminate your debt
Paying down your debt has far-reaching consequences. For example, paying off your credit cards could improve your credit score, which could help you get a lower mortgage interest rate, meaning you could buy a bigger house and have an extra child.
2. Insure your home and your family
Maybe your health insurance needs an upgrade, or perhaps your homeowners policy is lacking flood or natural-disaster coverage. If you’re a tenant without renters insurance, you’d be out of luck after a burglary or a fire. If you have a family that depends on your income, it’s vital that you have life insurance.
3. Build your emergency fund
A recent survey by the Pew Charitable Trusts found that one-third of American families have no savings, meaning they could be one lost job or illness away from financial ruin.
Everyone should keep three to six months’ worth in an interest-bearing emergency fund, like a savings account from People’s Trust. Although depositing a windfall into a savings account may not be as thrilling as gazing up at the Eiffel Tower, you’ll be glad you did it if anything goes wrong.
4. Stop procrastinating
Sure, your roof may hold out for one more winter, or your car could still squeak by an inspection with those half-bald tires, or maybe that thunderbolt of pain in your lower left molar every time you bite isn’t a cavity, but taking care of an impending expense before it becomes an emergency will often save you money and aggravation later.
5. Fund your future
Whether it’s your own retirement or your children’s college career, putting your refund straight into your IRA or 529 education fund is an investment in yourself and your family. Putting that $3,000 refund into a certificate of deposit earning 2.25% interest could generate an additional $350 over five years.
6. Give it away
When you donate money to a 501(c)(3) charity, you not only get that warm, fuzzy feeling that comes from giving back, but, if you itemize your tax deductions, you could write off the contribution.
So before you make any hasty purchases with that tax refund, consider the ways you can make it work for you: getting out of debt, improving your credit, keeping your family safe, funding your future or helping the world.
Judy McGuire, NerdWallet
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