Once you file income taxes1 each year, you may eagerly await the arrival of a refund from the IRS. Who doesn’t get excited by a financial boost? And according to data gathered in March 2024 from the IRS by CNBC, Americans may have a few more reasons for enthusiastic anticipation—based on early filings, the average tax refund Americans are receiving in 2024 is $3,145, about a 6% increase from the previous year. But before you plan a vacation or a shopping trip, consider these seven ways to use those funds to improve your financial health.
1. Top Off Your Emergency Fund
It’s a smart move to set aside enough funds to cover one to three months of expenses in an always-accessible savings account. If your emergency fund is running low, use some of your refund money to give yourself a bigger emergency fund buffer.
2. Ditch Some Debt
If you are carrying a balance on a credit card with high interest rates or have other types of expensive debt, put some of your refund money toward paying some of that debt down. And if you have more than one source of debt, get the most bang for your debt-reduction buck by taking care of the debt that carries the highest interest rate.
3. Invest in Future Earning Power
Put that refund to work. Use it for tuition expenses for college or job training for yourself or a loved one. Or put it in a college savings fund — many options, such as 529 plans, allow those funds to grow tax-free. Or invest some of the money in your business or side hustle.
4. Boost Your Savings or Long-Term Investments
Saving for a big event or purchase, like a wedding, a car, or a trip of a lifetime? Add some of your refund to a high-yield savings account and earmark it for that big expense. Do you have medical expenses coming up for the rest of the year? Consider beefing up your health savings account with part of your refund money. Or let your refund help you save for retirement by investing some of the money in an individual retirement account (IRA) or another investment plan.
5. Fix a Few Things
Investing in home improvement not only protects the value of your home, it also can reduce expenses if the improvements help you conserve energy or water. Whether you use part of your refund to patch a leak, insulate your home, or upgrade to energy-efficient appliances, you’ll enjoy your home more now and appreciate the lower bills later.
6. Plan a Special Treat
You worked hard for the income that the tax refund is based on. Absolutely set a little bit aside to treat yourself. But before you go shopping, why not think a moment first about what would make that treat truly special? Consider a unique outing with family so that your refund money can help you have quality time and create memories together. Or make a gift to a cause that is near and dear to your heart.
7. Prep for the Big Purchase
If you aren’t bogged down by debt and have big goals you’re working toward, this could be an excellent way to save. You can stash the whole refund or just a sizable portion of it toward a new car, a down payment on a new home, or a special day, like a wedding or graduation. The possibilities are endless, but when the big day arrives, you’ll be ready for it.
1 UFCU does not provide tax or legal advice. For such guidance, please consult a tax and/or legal advisor.
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