You spent several nights preparing your taxes, making sure that you’re entering the right details, filling out the right forms, and going through the receipts and claiming all available deductions.
And after a few weeks of waiting, you finally got your refund.
According to the IRS, Americans received an average of $1,949 for the first period of the year. While it’s slightly lower than last year, it is nevertheless a significant amount of money which you can use to pay off debt, make a major purchase, spend on vacation, put up a small home business, or make investments.
You can also use it as a savings fund.
According to research, 40% of Americans don’t have enough money to cover a $1,000 expense. Good thing is that people can apply for emergency payday loans as financial assistance. But what if there’s none? How can you ever deal with urgent expenses?
Putting up a savings account is perhaps the best thing you can do with your tax refund this year. It may be tempting to use your refund to purchase a new gadget or go on vacation. But if you want to put your refund to good use, you better put it in your bank first.
So how can you turn your tax refund into savings?
Pay off your debt first
It may sound counterintuitive but paying off your debt is actually a priority over stashing a savings account. Otherwise, you could end up spending your savings trying to pay the interest rates of your debts over time. Tackle the debts with the highest interest rates. If you can pay off all your debts, that’s better. At least, you could begin focusing on saving money.
Open a separate bank account
It’s easy to lose track of your expenses especially if you don’t follow a strict budget. So you don’t end up spending your tax refund, it is a good idea to open a separate bank account for your savings. Apart from keeping your finances more organized, you will also feel more motivated to continue saving money if you can see how much you’ve already got. At the same time, you avoid the possibility of getting tempted to spend your money on other things.
Buy savings bonds
If you’re still new to investing, a great way to start is to purchase savings bonds. Unlike investing in the stock market (and other forms of investment), you won’t have to fear the possibility of losing your money from savings bonds. These are considered the safest of all savings options because these are secured by the “full faith and credit” of the government. The IRS offers the Series I bond as an option for taxpayers who want to put their refunds into good use. You can buy these bonds from the IRS by simply submitting the IRS Form 8888.
Invest in a retirement plan
42% of adults have no savings at all, according to a report. Investing your refund in a tax-deferred retirement plan is the best way to secure your future. You can make a huge, one-time contribution if you have an Individual Retirement Account (IRA) or save your refund to fund a series of smaller contributions to last for several months.
Increasing your savings should be part of your financial goals. You never know what can happen in the future. Thus, it is best to be prepared. By looking at your tax refund as part of your earnings, rather than an earned income, putting it in a better use is going to be much easier.