If you are expecting to get a tax refund this year, you are one of the lucky ones. Depending on the amount of money you made last year, the amount of taxes that were deducted from your paycheck and the additional deductions you are entitled to when you file your taxes, your income tax refund check could be for a substantial amount of money. If you have a plan for what to do with the money before you receive it, you will be less likely to waste the money on something that will not benefit you in the long run. Here are some of the best uses for an income tax refund.
Pay Off Any Debt You Are Carrying
If you are carrying some high interest debt, receiving a tax refund could be the perfect opportunity for you to pay it off. Every month that you carry a balance on a credit card, you are subjected to interest charges and fees that add up to a substantial amount of money. The quicker you can pay off these debts, the better off you will be financially.
Build Up Your Emergency Fund
It is important for you to have an emergency fund available so you will not have to use expensive credit cards to handle unexpected expenses. Many people have gotten into the habit of using their credit cards as their emergency fund and find that it is very hard to pay off the balance without savings. Each subsequent unexpected expense will push the balance of the credit card higher and higher until the payments become unmanageable. The balance of your emergency fund should equal three months of your normal expenses at minimum. This way, if you should get laid off or have a medical crisis, the money in the emergency fund will be waiting for you.
Save For College Or Retirement
If you are not carrying any debt and have already established a sound emergency fund, you should consider saving your income tax refund for future needs by placing the funds in a college saving account or a retirement account. Putting the money into these types of accounts allows the money to grow without taxation until it is needed. It is important to follow the rules for the account when withdrawing the money as there are severe monetary penalties for using the money for things other than what it had been saved for.