Five smart ways to use your tax refund

If you are getting any tax refund then you should consider these five ways to put that money to work. If you haven’t done your taxes yet then now is a really good time to do it.

1. Pay off debt

If you have any debt especially high interest credit card, auto title loans or payday loans you really should use your tax refund to pay as much of those off as you possibly can.

2. Put it to your emergency fund

If you haven’t fully funded your emergency fund or if you haven’t even started it then now’s a good time to use your tax refund to kick start it.

3. Add to your retirement account

The more you put money early in your IRA the better it will compound until your retirement. If you have a traditional IRA you might also be able to use the contribution as tax deduction next year.

4. Save for vacation

It’s always good to have savings in addition to your emergency fund for vacations and occational splurge or pampering yourself. It’s always good to reward yourself for meeting goals and not spending everything the moment you receive money.

5. Invest

If you haven’t started investing yet nows a good time. The interest rates are really low currently and you won’t get much of a return on your savings. If you have little extra to spare it’s a good idea to try to get some extra return on your money. I personally like to invest in low maintenance fee ETFs that provide some divident yield. Charles Schwab has bunch of commission free ETFs.

Personally I used my tax refund to pay off my motorcycle loan and put rest of it in my emergency fund. That in turn has freed up more money I can save and invest every month.