Regardless of how much you receive, try to resist the urge to blow your return on a trip to Hawaii or a new wardrobe. Both would be fun purchases, but they’re not the wisest ways to use your new cash flow. Here are five of the smartest ways to spend your gift from Uncle Sam:
ADD TO YOUR EMERGENCY FUND – If you’re like many families, you might not have an emergency fund. Since we just came out of a recession, that’s understandable. But it’s time to rebuild that nest egg (or add to the one you might have). Experts recommend a three-month savings to cover mortgage, utilities and food, but even if you can sock away $1,000, that’s still more than most people.
REFINANCE YOUR HOME – If interest rates are lower than your current mortgage and you plan to be in your home for several more years, refinancing your home in order to score a lower monthly mortgage bill might be a good idea. But you’ll need your tax return – likely between $2,000 and $4,000 – to cover closing costs and other fees.
PAY DOWN YOUR DEBT – High interest credit cards can double the long-term cost of anything purchased with the card, which is why it’s a good idea to pay down your credit card debt whenever you can. Pick the highest interest card and either pay it off (if you can) or at least put a $1,000 or more toward reducing it.
GET A HOME ENERGY AUDIT – Saving money on utility bills starts with having an energy efficient home. To start saving, call an expert to perform a home energy audit, which will reveal any leaky windows and doors and where to add some insulation. The audit will cost between $50 and a few hundred dollars, but the long-term savings makes it more than worth it.
HAVE FUN – Not everything you spend your tax return on has to be “boring grown up stuff.” Give yourself a reward for adding to your emergency fund or paying down your credit cards. What will you buy? That’s up to you!