News reports are contradicting each other when it comes to 2018 tax returns. USA Today reported that the average refund was down 8.7 percent year over year as of February 21. Meanwhile, Yahoo! Finance reported that the average refund this year is $3,143, a 1.3% increase over last year, also based on the latest IRS data.
Regardless of the size of your tax refund – if you receive one at all – you should have a plan to maximize this one-time lump of cash.
Here are six ideas for what you can do with your tax return:
Create (or add to) an emergency savings account
According to a 2016 GOBankingRates.com survey, 69 percent of Americans said they have less than $1,000 in savings.
CAP COM Financial Services recommends the first step to financial independence is establishing an emergency fund so that you are prepared to absorb a job loss, illness, injury, or other emergency.
With a Members’ Choice Account, you can establish your own emergency fund and add to it anytime you want.
Pay off credit cards
According to the Federal Reserve, Americans carry a revolving debt – mostly credit card balances – of nearly $1.05 trillion as of December 2018. Many cards, especially retail cards, come with high interest rates. Your tax refund was an interest-free loan to the government, so recoup some interest by paying down your high-interest credit cards or transfer the balance to a card with a fixed rate.
Create a DNT account
DNT stands for Do Not Touch. After you have established an emergency fund and made a plan to pay off your credit card, the next step is creating a systematic savings plan that will provide you with the consistency you need for long-term success.
With a CAP COM iSave Certificate, your refund can earn a high interest rate for 12, 18, or 36 months. You can open an iSave Certificate for as low as $100 and keep adding to it.
Pay off (or down) a loan
Whether you have a school loan, car loan or other personal loan, you can use your refund to pay off or pay down some of that loan. If the interest rate on your loan is lower than the rate of a certificate or Money Market savings account, then refer back to option 3.
Add to your retirement account
An Individual Retirement Account (IRA) is a dividend-bearing, tax-deferred account that may offer tax advantages when the money is deposited for the purpose of saving toward retirement. Traditional IRAs can be used as tax deductions in the year of deposit, and Roth IRAs are invested after taxes but can be withdrawn tax free during retirement.
Of course, we recommend the first five options, but this story is about things you CAN DO with your refund, not necessarily what you SHOULD DO with it. If you feel confident that you have achieved success in the first five recommendations, then SPEND IT!
Just one week after receiving a tax refund, families on average have spent about 26% of their refund, according to a recent JPMorgan Chase Institute report. Health care, flat-screen TVs and vacations are popular purchases.
While spending your refund might be the fun thing to do, it is not the most popular. A Credit Karma Tax survey showed that only 11% of respondents planned to use their 2017 refund on a vacation and 10% planned a major purchase. The most popular plan? One-fifth of respondents said they planned to put money in the bank.