The IRS officially launched tax season on January 29. You can file your tax return and possibly receive a refund. According to IRS statistics, the average tax refund was $2,782 in 2017. For many of us who receive refunds, it can be tempting to spend it on something we want and not something we need. There are smart ways to spend your refund even if it is smaller than what you were expecting.
- Save for an emergency: A recent survey published by Bankrate.com, a personal finance website, found only 39 percent of Americans could cover a $1,000 emergency. You could save your tax refund to pay for medical bills or rent after a job loss. These are just two examples of emergencies that could cost more than $1,000.
- Pay off your debts: You could use your tax refund to pay off student loans or credit cards with high interest rates. Making payments on high-interest debts could save you money in the long-run.
- Purchase what you need: Your tax refund could be used to purchase something you need or might need in the future. For example, you could have your vehicle serviced or you could replace a home appliance.
- Put it towards retirement: Have you already paid down your debts or established an emergency savings account? You could contribute some or all of your tax refund to a traditional or Roth IRA.
- Save for your child’s education: You could use your tax refund to help fund you child’s future education. For instance, you could put your tax refund towards a 529 plan.
These are just a few suggestions of how you could use your tax refund to improve your finances. It is by no means an exhaustive list. However, it would be wise to follow the first suggestion. Medical bills or job loss could very easily turn your financial life upside-down. Your tax refund could be the first step towards creating an emergency savings account.
If you are already in a difficult financial situation, then you could explore the possibility of filing for bankruptcy. Our Kansas City bankruptcy attorneys could discuss your situation to help you find options for debt relief.