4 Common Ways People Use Their Tax Refunds
It’s that time of year again — tax season! While some people dread this time of year, worrying they’ll have to write a check to the government, others are eagerly awaiting the arrival of their tax refund. For many people, tax refunds represent a very welcome and much needed shot-in-the-arm to their finances. This year, the average tax refund is $3,116. So, what are people doing with that money? Here are just four of the most common ways people use their refunds:
Put it Into Savings/Invest It
It never hurts to have a little extra money in savings, so it’s no wonder that so many people like to put at least part of their tax refunds right into their savings accounts. Whether you’re trying to build up an emergency savings fund, save for a child’s college education, or want to start setting money aside for Christmas gifts, saving your tax refund is a very smart, practical way to put your check from the IRS to good use.
When people are in a position where all of their savings accounts are healthy and they have no outstanding debt to pay off, they often like to put their refunds to work by investing them. That way, the amount of money they get back from Uncle Sam can grow.
Pay Down Debt
The worst part about having debt is that because of interest fees, it only gets bigger with time. Many people choose to use their tax refunds to make a dent in their debt and avoid added interest charges. While some people pay off their outstanding credit card bills, others like to use the money to pay off larger portions of their mortgage, car, or student loan debt so the debt will be fully paid off sooner.
Make a Major Purchase
Many people see their tax refunds as the perfect opportunity to make a major purchase they’ve been considering, like a new car, a new computer, or making improvements to their home. If you’re looking to purchase a new home, tax refunds are a great way to add to your down payment fund. When you make a larger down payment, that means you’ll have less to borrow on a mortgage and you’ll be able to pay it off sooner.
If you’re planning to purchase a home in a complex or housing community, check to see if they offer a down payment matching program. If they do, using your tax refund to make a larger down payment would be an excellent way to make your refund go further.
Splurge on Something Fun
Dying to take a vacation? Had your eye on a really nice pair of shoes? You’re not alone. Using a tax refund to pay off debt or add to your savings account are sensible ways to use a tax refund, but they’re not necessarily the most fun. Some people just can’t resist the temptation to use some of their tax refund to do have a bit of fun.