Tax season is in full swing, and many Americans are eagerly awaiting their tax refunds. According to The Hill, the average tax refund in 2024 was $3,011, up from $2,878 the previous year. With this extra cash in hand, experts are offering advice on how to make the most of your tax refund.
One common recommendation is to use the refund to tackle outstanding debt. This is especially important for revolving or high-interest rate debt, such as credit card debt. Paying off debt can help improve your financial situation and save you money on interest payments in the long run.
If you're fortunate enough not to have significant debt, experts suggest padding or re-padding your emergency savings. It's recommended to have at least six to nine months' worth of expenses saved up in case of unexpected financial emergencies. This can provide peace of mind and financial security.
Another tip is to apply the same approach to unexpected influxes of cash throughout the year. Instead of splurging on unnecessary purchases, consider saving or investing the money to grow your wealth over time.
Saving is becoming increasingly important as credit card debt continues to soar. The Federal Reserve Bank of New York reported that credit card balances had jumped by $50 billion in the fourth quarter of 2023, reaching a record $1.13 trillion. Many consumers are feeling financial stress due to inflation, so building up savings can help provide a buffer against economic uncertainties.
According to Yahoo Finance, there are four things you should do with your tax refund. First, consider paying off high-interest debt, such as credit card balances. This can save you money on interest payments and improve your financial situation. Second, build up your emergency savings. Having a cushion of at least six months' worth of expenses can provide financial security in case of unexpected events. Third, invest in your future by contributing to retirement accounts or other long-term savings vehicles. Finally, consider using a portion of your tax refund for something fun or rewarding, such as a vacation or a special purchase. It's important to strike a balance between responsible financial choices and enjoying the fruits of your labor.
In summary, experts advise using your tax refund wisely by paying off debt, building up emergency savings, and considering long-term financial goals. By making smart choices with your tax refund, you can improve your financial well-being and set yourself up for a more secure future.