Refund Check 2019: 3 Ways to Make the Most of Your 2019 Income Tax ReturnWhat's The Deal
It’s tax refund season and the checks are in the mail. Time to blow your federal and state tax return on retail therapy, right? Think again. Today Show financial editor Jean Chatzky has three ways to make your refund check work for you.
1. Use Your Tax Return to Jumpstart a Rainy-Day Fund
The first thing you should do with your refund check? Jumpstart a rainy-day fund. “Use the money to fund an emergency savings account, which far too few people have,” advises Jean. In fact, a recent survey by Bankrate found that less than half of all Americans – only 40% – could pay an emergency expense of a thousand dollars out of savings. Most of the rest would put the unexpected hit on a credit card. So now you’re paying a thousand bucks plus interest! That’s why emergency funds matter. “And if you’re gonna do that, you should put the money into a high yield savings account,” adds Jean.
Since your rain day fund is made of money you don’t plan to access unless there’s an emergency, hopefully it’s gonna just sit there – so the interest rate matters. “Most savings accounts, on average, are only paying one-tenth of one percent in interest. You can do much better than that,” informs Jean. So shop around! A current search turned up savings accounts with zero minimum balance requirements with annual percentage yields of up to 2.4 percent. “So that’s more than twenty times that, so that’s a much better move,” Jean points out. You want to gain interest, but you don’t want to pay interest – which leads us to our next refund check tip.
2. Use Your Refund Check to Attack High Interest Debt
The second things to do with your refund check? Attack your high interest debt. “You can also use the money to pay off high interest rate credit card debt that far too many people have these days,” says Jean. According to Credit Donkey, the average American has 3.1 credit cards, carries over five-grand in debt, and pays over sixteen percent interest. When you make a chunk payment, you’re essentially paying that amount, plus preventing future interest on that amount. So your money’s going further!
3. Max Your Match
Finally, if your emergency fund’s looking good and your credit cards are paid off, use your refund check to max your match. “You can use it to make an additional contribution to a retirement plan, [and] maybe grab some matching dollars,” says Jean. If for cash flow reasons you haven’t been maxing out your company’s 401-k match, ask your HR department how you can use your refund check to boost your contributions. It’s free money, and the sooner you get it in those accounts, the more you’ll benefit from compounding interest between now and retirement. So don’t waste that refund check!
Ready to start putting your refund check to work? Now you’ve got three ways to help you do just that!
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