According to the IRS, the average income tax refund last year was $2,700—a nice windfall for many families. If you are getting a tax refund this year, you might be tempted to splurge on a shopping spree. But before you hit the mall or electronics store, consider all of your options so you make the right decision with the money. Keep in mind that depending on the amount of your tax refund; you may be able to do several different things with the money.
Here are a few of the options you should consider:
Replenish your emergency fund
Before you spend a penny of your tax refund, it’s important that you review your emergency fund to make sure that you have enough money saved. If not, you should use your refund to fund an account of at least 3-6 months of expense. Put the savings into an account that is easily accessed in the case of an emergency.
Start or fund a 529 college fund
With all of the other expenses that families have, sometimes college savings can take a back burner. If you haven’t started college savings accounts yet, or don’t have much money in them, consider using at least part of your tax refund to start a 529 plan for your kids. Then, if possible, start an automatic savings plan so the accounts can continue to grow.
Plan a family vacation
If you have a dream family vacation in mind, you may want to use your tax refund to pay for all or part of the trip. Traveling on a family vacation is a great way to bond as a family, and can be very educational also. Don’t rush to book something right away though—do your research and find the perfect place and a great price.
Pay off debt
Do you have credit card debt or other high interest loans? If so, you might want to use your tax refund to pay down some of your debt. You’ll save money in the long term on interest payments. Once you are credit card debt free, resist the urge to build the debt back up.
Do some home improvements
Perhaps you have a few small home improvements in mind, like painting some rooms or replacing appliances. Your income tax return may be just the right amount of money to spruce up your home. Your home is likely your biggest asset, so keeping it in good shape can help you preserve its value.