Make the most of your tax refund: 6 smart money moves

A tax refund can be a chance to get ahead financially. Instead of spending it all right away, think about where your money would be most useful for you.

1. Build your emergency fund

No one wants to think about facing a job loss or unplanned medical bills, but it’s important to have a plan for life’s unexpected expenses.

An emergency fund ensures your basic needs will be covered if you need to use your paycheck elsewhere. It’s a safety net that doesn’t affect your credit score—unlike racking up credit card debt, taking out a cash advance, or relying on loans. 

If you’re just starting to build up an emergency fund, you can start off small. Your tax refund could amount to a week’s (or even a month’s) worth of expenses. That’s a great foundation to start building upon in a savings account.

2. Invest your tax return

If you’ve already built up enough cash to cover a few months’ expenses, consider letting your money multiply.

Investments don’t have to be a long-term commitment. You can even grow your savings in just a few months or years with a short-term approach like a certificate of deposit (CD) or money market account (MMA).

Both CDs and MMAs offer higher interest rates than savings and are backed by FDIC insurance, making them low-risk investments compared to stocks and bonds. There are also key differences that can make either account a better choice for your financial situation—read up on them to help make sure you choose the right one.

3. Pay off debt

Whether it’s a credit card, personal loan, or home equity loan, many people have some form of debt. Depending on the size of your refund, you may be able to pay off the principal amount in full.

If you have multiple balances, you may be tempted to pay off the debt you’ll have the longest (like a home equity loan), but you should always prioritize the debt/loans with higher interest rates. 

4. Make an extra payment

Some loans may be too much to pay off in full, but that doesn’t mean you can’t put a dent in your payments.

From student loans to car payments and even your mortgage, one extra monthly payment per year can go a long way in helping you avoid interest.

For example, try a mortgage calculator with extra payments to see how much sooner you could pay off a large sum with this strategy. Your tax return could be the yearly boost that turns a 30-year mortgage into a 25-year one.
 
5. Planning ahead

Maybe you’re still working toward the goal of homeownership or even just an apartment upgrade. Moving comes with a lot of upfront costs, and a tax refund can cover movers’ fees and more. If a down payment on a house is your end goal, your yearly return could get you one step closer to that future home.

You also can use your return to start planning for other large goals, like college and even retirement. From 529s to 401(k)s to IRAs, there are lots of different accounts to help you grow your savings for the long term.
 
6. Help yourself (and others)

While saving is ideal, sometimes you just need to pay for a pressing expense immediately.

Whether it’s a new appliance, windows, or a larger renovation, home improvement expenses are always hard to fit into a monthly budget. That’s why using your return can be a smart move, even if it’s just to get you started. Homeowners can also look into using home equity to finance the remaining costs of home improvement projects.

Improving your day-to-day quality of life can be a smart use of your refund, whether you need a new pair of glasses or a new computer. If you have everything you need, your finances are in order, and you’re feeling generous, you might even consider donating to a local charity. Your contribution will help your community, and it may even come full circle in the form of a tax deduction next year.

Make a plan

No matter how much your tax refund amounts to, you’ll want to have a strategy in place to make the most of your money. There are lots of options out there, so talk to one of our local bankers to help decide which is best for you.