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Five Smart Things to Do With Your Tax Refund

Five Smart Things to Do With Your Tax Refund

| May 15, 2024

Having a plan can help you use your money wisely

If you have a refund check coming your way, consider using it to bolster your personal balance sheet. According to the IRS, the average refund will be about $3,300, and many receive the money within three weeks of filing their returns if they file electronically and elect to have their money sent by direct deposit to their bank account. That’s a nice chunk of change.

Here are five smart things you could do with the money.

#1: Pay Off Credit-Card Debt

The average credit card interest rate is 18.32% for new offers and 14.51% for existing accounts, according to WalletHub's Credit Card. Using your refund to pay off a balance with an 18% interest rate is like earning 18% on your investments -- an incredibly valuable use of the money.

#2: Rebuild Your Emergency Fund

It's a good idea to keep three to six months' worth of expenses in an emergency fund, so you don't land in debt or have to raid retirement funds if you have unexpected expenses. If you've had to tap the fund over the past few years, you can use your refund to help build the account back up. Keep the money easily accessible in a money-market account or savings account that earns some interest.

#3: Fill Gaps in Your Insurance

  • Liability Insurance - Cover your legal expenses if someone is hurt in your home or by your car. It generally costs just $200 to $400 to buy a personal umbrella policy that provides $1 million in coverage over the limits of your auto- and homeowners-insurance policies.

  • Home insurance - Hurricane season starts in June, so it's a perfect time to use some of your refund money to protect your home. For about $130, you can add $10,000 to $20,000 in sewage backup coverage -- which isn't part of a standard homeowners policy. Consider buying a home generator: A 6.5 kw portable generator costs about $800 to $1,000. An automatic standby generator costs more than your refund (about $4,000 plus $3,500 for installation), but the money you get from Uncle Sam can help you start saving for one.

#4: Prepay Your Vacation

Set aside some money for vacation rather than using your credit card and paying interest long after you have returned. Or you can use some of your refund to start saving for holiday gift-giving or help with other short-term goals, such as for a down payment on a new car.

#5: Invest in Your Home

Your refund won't be enough to redo your kitchen or bathroom, but it can pay for some smaller home improvements. Use the extra cash to add a backsplash, paint a room or cabinets, replace your bathroom sink, swap out your faucets, organize a closet, install a programmable thermostat or spruce up your yard.




Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by FMeX.

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