If you have a
refund check coming your way, consider using it to bolster your personal
balance sheet. According to the IRS, the average refund will be about $3,300,
and many receive the money within three weeks of filing their returns if they
file electronically and elect to have their money sent by direct deposit to
their bank account. That’s a nice chunk of change.
Here are five smart
things you could do with the money.
#1: Pay Off Credit-Card
Debt
The average
credit card interest rate is 18.32% for new offers and 14.51% for existing
accounts, according to WalletHub’s Credit Card. Using your refund to pay off a
balance with an 18% interest rate is like earning 18% on your investments — an
incredibly valuable use of the money.
#2: Build (or Rebuild) Your Emergency Fund
It’s a good idea to
keep three to six months’ worth of expenses in an emergency fund, so you don’t
land in debt or have to raid retirement funds if you have unexpected expenses.
If you’ve had to tap the fund over the past few years, you can use your refund
to help build the account back up. Keep the money easily accessible in a
money-market account or savings account that earns some interest.
#3: Fill Gaps in Your
Insurance
- Liability Insurance. Cover your legal expenses if someone is
hurt in your home or by your car. It generally costs just $200 to $400 to
buy a personal umbrella policy that provides $1 million in coverage over
the limits of your auto- and homeowners-insurance policies.
- Home insurance. Hurricane season starts in June, so
it’s a perfect time to use some of your refund money to protect your home.
For about $130, you can add $10,000 to $20,000 in sewage backup coverage
— which isn’t part of a standard homeowners policy. Consider buying a
home generator: A 6.5 kW portable generator costs about $800 to $1,000. An
automatic standby generator costs more than your refund (about $4,000 plus
$3,500 for installation), but the money you get from Uncle Sam can help
you start saving for one.
#4: Prepay Your Vacation
Set aside some
money for vacation rather than using your credit card and paying interest long
after you have returned. Or you can use some of your refund to start saving for
holiday gift-giving or help with other short-term goals, such as a down
payment on a new car.
#5: Invest in Your Home
Your refund won’t
be enough to redo your kitchen or bathroom, but it can pay for some smaller
home improvements. Use the extra cash to add a backsplash, paint a room or
cabinets, replace your bathroom sink, swap out your faucets, organize a closet,
install a programmable thermostat, or spruce up your yard.
