Use Your Tax Refund to Kick-Start Savings

Filing tax returns can be a tough task, but the effort certainly feels worth it when you get a nice tax refund deposited into your account. A tax refund is simply the money that you overpaid to the government throughout the year.

You might be tempted to use this extra lump sum of money to make splurge purchases, but there are smarter ways to use it. Here are 7 ideas that can help you financially in the long run.

1. Pay down debt

Credit card debt, student loans and other payments can strain your monthly budget. You can lighten that load by using your refund to pay down debt. Whether you pay off a lot of it or just a little depends on how much you have and how big your tax refund is.

2. Start or add to an emergency fund

You can’t predict life’s interruptions, like a job loss, medical emergency or sudden repairs. But you can prepare for unexpected expenses. Create a safety net for yourself by starting or adding to an emergency fund using your refund and a portion of your paycheck or other source.

Whenever you pay off a debt in full, start putting that same amount you would have put toward that bill into your savings or money market account instead. It’s the same amount of money you're used to paying out each month, but more of it will be going into a savings fund that can help you out later.

3. Contribute to your retirement savings

Dreaming of a comfortable retirement? Your refund could grow tax-free or tax-deferred if you put it in a 401(k), Individual Retirement Account (IRA) such as a Roth or traditional IRA, or other retirement savings vehicle. Contribution limits are based on your income, but your vested contributions can benefit from compound interest. 

4. Save money for college

Putting your refund into a 529 plan is an investment in a child’s future, and earnings on the investment are free from federal taxes. There are no income or age limits. Annual contribution limits depend on your state. These can change, so check your state’s 529 plan details.

5. Put aside money to buy a home

A tax refund offers a great opportunity to start saving toward your goal of becoming a first-time homebuyer. Open a savings account or certificate that’s dedicated to building up a down payment.

6. Start a short-term savings account

Want to splurge on something special, but need to save more to hit your goal? Consider a short-term savings account. With the money safely tucked away, you can avoid the temptation to spend it. Building a solid financial foundation now could help you to be able to afford to spend more money on what you want later.  

7. Start investing in the stock market

Investing can help you reach big life goals, like buying a home, starting a business or building a retirement fund. You can get started for surprisingly little money.

Make the most of your tax refund with Navy Federal Credit Union

Whether you’re saving for the short or long term, Navy Federal offers a variety of savings and investment accounts to help you meet your goals. We invite you to speak with one of our financial advisors today.