Its tax refund time!
While it is tempting to immediately go out and get a whole new wardrobe, consider taking a step back for a moment. Now is a great time to practice a little self-control and think about how you can get the most from your refund. Adulting is hard but it can definitely pay off. Check out some smart ways to spend your tax refund to make better life decisions.
Pay off or pay down your credit card debt.
Now is the best time to pay off your credit card debt. Doing it with your tax refund means shortening your repayment timeline and saving you money in the long run. The numbers speak for themselves.
Check out how much you could save in this repayment example:
|Interest rate: 13%|
|Balance: $5,700||New balance: $3,400|
|Payment: $200||Payment: $200|
|Total cost: $6,853||Total cost: $3,776|
|Tax Refund amount: $2,300|
Total Savings: $3,077 (!!)
Check out this calculator to see how much you could save.
Save the money for student loan repayments to restart
Starting in May, the government relief program to defer student loan payments will end. This will most likely be hard on all the people that haven’t had to pay it in over two years. Therefore, if you use the money toward your student loan bill it will give you some extra time to readjust your budget.
For example, if your payment before the pandemic was $400 and your refund was $2,300 then you would have about 5 months to get things figured out.
Save it for your future
Thinking long term can be hard when presented with a sudden influx of cash. However, I think everyone can agree that we all sleep better when, for example, we have some of these things covered:
- Enough money in an emergency fund
- When starting off, aim for a minimum of $500 (but more is better).
- Aim for a goal of at least three months’ worth of living expenses.
- Invest your refund to have more money in the future
- If you invest your $2,200 refund at 6% average annualized return over 10 years you could yield over $3,900.
At the end of the day, while instant gratification feels good in the moment, saving and investing in your future are the true keys to financial happiness. Take some time to analyze and research the best smart ways to spend your refund.
SMFCU members, make sure to look at the different savings options that we offer to members to see which one would be right for you.
Check out this CNBC article, 3 Timely Ways to Spend your Tax Refund.