With tax season in full swing, many Americans could find themselves with extra money on hand. Internal Revenue Service statistics showed the average refund this year will be $2,803.
According to Capital One Bank’s annual Taxes and Savings Survey, 85 percent of Americans are expecting a refund and more than one third said they will spend some or all of it.
The main area people plan on spending their refund is for everyday expenses and necessities, followed closely by vacations. Consumers also plan on purchasing clothing and accessories, electronics and other major purchases.
At a time when people are seeing smaller paychecks, now more than ever they should take a step back, evaluate their financial goals and consider saving their tax refund,” said Mickey Konson, managing vice president for retail banking at Capital One Bank. “People tend to think of their tax refund as free money or an annual bonus, which makes it very temping to spend it right away, but remember, that refund is your own money without added interest.”
While spending a refund may seem like a good idea, there are many other ways consumers could use this money that could be more beneficial.
Pay down debt – One of the biggest areas people should consider using their tax refund money is to pay down debt. Whether it be mortgage or credit card debt, eliminating some of this can be extremely beneficial. Not only could it improve their financial situation, but their credit score could also rise, which could be a major benefit.
Create an emergency fund – Another area they could use their tax refund dollars is to create an emergency fund. Unexpected expenses can be detrimental to a person’s budget. This type of safety net can help prevent any budget damage from happening. With an emergency fund, people could have savings to tap into should they ever have an unexpected trip to the hospital or a car repair.
Save for retirement –Those who are approaching retirement may want to consider putting their tax refund money into their 401(k), IRA or other account. Many older Americans are being forced to work later in life, as they find themselves with inadequate nest eggs. Putting money from their tax refund into their retirement accounts could help them avoid this and enjoy a nice life after they leave the workforce for good.