Now that tax day is over, it's time to think about your next move — what to do with your refund. Many of you may become a few thousand dollars richer, because the average tax refund this year is about $3,000, according to IRS agency chief Douglas H. Shulman. Although I've been seeing a few Facebook statuses about using the money to buy a new pair of shoes or bags, there are more financially savvy ways to spend your tax windfall. Here are some financially responsible things to do with the extra cash:
- Pay off high-interest debt. Make a dent in your debt by using your refund check to pay it off. Lowering the amount you owe, whether it be credit card debt or car loans, means reducing the interest you'll be paying. Paying less interest will equate to more savings down the road. Be smart when choosing to pay off debt and keep in mind that paying down debt might result in a lower credit limit.
- Emergency fund. If you're living paycheck to paycheck, this might be a good time to save some money for a rainy day. Anything can happen these days — you may have to pay for unexpected fixes on your car or you might even lose your job (knock on wood) — so you really need to have some extra financial padding to get you through the tough times. If you have a lot of high-interest debt to pay off, you may want to use most of your refund to pay off the debt, then squirrel away a portion of it toward your emergency fund. It's good to have at least six months to a year of emergency savings.
- Green your home. Make your home more eco-friendly by purchasing Energy Star appliances that will save you money on utilities. Figure out if your home can improve on insulation by using your refund to pay for a paid inspection by a professional energy auditor. Save energy and money by figuring out what works best for your house, from installing windows and doors that fit better to plugging and caulking cracks and holes.
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- Retirement contributions. You need to start saving for retirement early, and now's the perfect time to up your contributions or start a retirement account if you haven't already.
- Save for your wedding. Most of us are planning on having weddings, whether it be big or small. If you know you want a wedding (regardless of your relationship status), it might be a good idea to start saving for it. Most people start saving for the big day after they get engaged, which only leaves them a relatively short amount of time to save up a large amount of cash. If you start now, you won't have to worry too much about paying for your wedding when the time comes. Of course, if you have other pressing money responsibilities, your wedding budget will probably take a backseat.
- Fix up your car. Your vehicle is one of your biggest investments in your life, so spending cash to maintain it is a smart move. Give it a tune-up and clean air filters. If your car is at its optimum performance, maintenance will make it less polluting and more fuel-efficient. A properly maintained car can save you hundreds or even thousands in repair costs in the long run.