Hopefully you have completed your tax return by now and are eagerly awaiting your tax refund to arrive. Most of us prefer to receive a refund instead of paying the IRS more of our hard earned money.
Did you know that the average tax refund is approximately $3,000 according to the IRS?
That’s not an insignificant amount of money. If you are anticipating a four figure tax refund, you may already have visualized how you will spend your refund. Instead of spending your tax refund on something you may not need why not save it.
Saving instead of spending your refund can have a long term positive impact on your finances as well as help you reach one of your annual financial goals. As I have written previously, saving money will help you simplify your financial life as well as provide you with a financial peace of mind.
Here are 5 ways you can use your tax refund to save now:
Save for an Emergency Fund
You can use your tax refund to replenish your emergency fund. If you don’t have one already establish, your refund can help you quickly put one in place. Having an emergency fund in place for those unexpected expenses that can occur, will provide you with a financial peace of mind knowing the money is there. You do not have to worry about where you will find the money to cover the expense or worse maybe having to use your credit card to pay for the expense.
Save for Retirement
You can use your tax refund to fund a retirement account. Hopefully you are already contributing to your employer’s 401k or retirement plan. However just contributing to your employer’s retirement plan may not enable you to save enough. Use this year tax refund money to open an IRA account or make your annual contribution if you have not already contributed this year. By making this contribute may provide you with a tax deduction (depending on your income level). You can beat saving for the future as well as possibly saving on future taxes.
Save for Child’s Education
Use your tax refund to contribute to your child’s future education cost. You have probably read how education cost continue to increase every year. If you don’t begin to save while your children are young you may have to turn to other forms of financing the cost of tuition.
The more you have saved now the less you will have to budget for in the future. It’s never too early to start saving for your children’s tuition bills. There are several types of educational accounts which enable you to save for educational purposes and have some tax advantages.
Save Medical Expenses
You can apply your tax refund to future medical expenses. Just like an emergency fund having funds set aside to cover medical related expenses can be a good use of your tax refund. Having money set aside for those medical cost, will provide a financial peace of mind knowing the funds are there when needed.
Save for Future Purchases
You your take refund to save for future purchases. I am pretty certain you will make a large purchase in the future. Why not use refund to begin saving for that next purchase. It could be the new home, car, or maybe dream vacation you always wanted. It will be less stress on you and your budget if you apply the refund to future purchases then.
As you patiently wait for your refund check think about what saving bucket you will apply your refund to. Applying to saving versus spending it, will make a difference on your long term financial picture.