Another option is to transfer extra money into your mortgage offset account. You could also eat at home instead of dining out and “tip” yourself by adding a few bucks to your emergency fund. If you get cash back on your credit cards or just paid off a big debt, such as a personal loan or an automobile, put that newfound money into your fund. If you manage to dedicate just $5 per day to your effort, you’ll have $1,825 at the end of the year; that’s $9,125 in just five years.

How To Use Your Tax Refund To Build Your Emergency Funds

If you use a credit card or take out a loan to pay for these expenses, your one-time emergency expense may grow significantly larger than your original bill because of interest and fees. Your cash flow is essentially the timing of when your money is coming in (your income) and going out (your expenses and spending). If the timing is off, you can find yourself running short at the end of the week or month, but if you’re actively tracking it, you’ll start to see opportunities to adjust your spending and savings . Where to Keep an Emergency Fund Your emergency fund should be relatively liquid, meaning you can access it easily and quickly without having to sell or cash out other investments. At the same time, you don’t want it to be so accessible that you are constantly dipping into it to cover everyday expenses.

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And with prices rising for many consumer goods, experts say careful investing can be a good way to hedge against inflation. If you’ve prioritized building a strong financial foundation, most likely you already have a plan in place to reach one or more of your dreams. And when you pour any tax refund dollars directly into your savings goal, you’ll get there much faster. When you open an account with Live Oak Bank, you can trust that your dollars are earning money, not just sitting idle. With competitive interest rates, there are no minimum balance requirements for savings accounts and the online opening process is simple. If there are any roadblocks, our North Carolina-based customer support team can help guide you through the process.

  • Any amount you can add to your savings will go a long way when you’re coming in far behind.
  • Your tax refund could be used to fund a 529 college savings account on your child’s behalf.
  • A tax refund marks a great chance to set yourself in a better position for the future.
  • “It’s such a relief to know that if the AC goes out, we have the funds to fix it,” she says.
  • Be aware that restrictions and penalties may apply if you make early withdrawals from your retirement funds.

Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice.

Suggestions for What to Avoid with a Tax Refund

Essentially, if you have a months’ worth of expenses saved in your bank, you are on the right track – this could be as little as $1,000 or as much as $5,000 – or more. This should cover a month’s worth of rent or mortgage payments, food and utility bills, transport and entertainment expenses, as well as education and clothing. An excellent choice for short and long-term savings goals, a money market account is a savings account that https://turbo-tax.org/ offers a higher Annual Percentage Yield (APY) than most traditional savings accounts. The higher rate helps your money grow in a secure account until you’re ready to use it for a home improvement project, a new car, or your dream wedding. If you already have an emergency fund and you’ve either applied money toward debt or don’t have any debt, then consider putting at least some of your tax refund into a high-yield savings account.

  • Before you can decide how much emergency fund dollars you need, you should write down a list of the things that you class as an emergency.
  • To achieve your three-month target, you need to start saving money.
  • Securities such as stocks and bonds can be used to build a diversified portfolio that can grow significantly over time.
  • Not every unexpected expense is a dire emergency but try to stay consistent.
  • If three to six months’ worth of expenses seems daunting, start small.
  • You can work with the agency to resolve the outstanding issues.

But regardless of how you decide to use it, having a plan can help you make the most of your tax refund. It’s harder to spend money you don’t see, so make sure to keep this separate from your regular checking or other spending account. If three to six months’ worth of expenses seems daunting, start small. The average emergency costs Americans around $1,400, according to a LendingClub survey from last year. And generally speaking, earning more money seems to make it easier to put more away. Those earning six-figure salaries are three times as likely to have an emergency fund as those who earn less than $50,000 a year, the survey found.

Wise Ways to Use Your Tax Refund

Once you know your total expenses for each month, multiply that number by three. To achieve your three-month target, you need to start saving money. Think of it as a shock absorber for the bumps of life, one that’ll keep you from adding to the load of debt you most likely already carry. The coronavirus outbreak has shone a giant spotlight on the difference having an emergency fund makes when a crisis hits. Remember, a tax refund isn’t free money; it’s your own money given back to you at the end of the year.

While it’s encouraging to see a large portion of the 4,336 survey respondents taking this crucial step toward financial wellness, there’s always room for improvement when it comes to preparing for the unexpected. The last couple of years have been plagued with financial turmoil, from the economic impacts of the Covid-19 pandemic to record-high inflation to ongoing rate hikes https://turbo-tax.org/how-to-use-your-tax-refund-to-build-your-emergency/ from the Federal Reserve. The website you are being directed to is not created by Securian Financial Group, Inc. or any of its subsidiaries. The new website may be subject to privacy policies, security policies and terms and conditions different from those at Securian Financial Group, Inc. “12 Smart Things to Do With Your Tax Refund,” turbotax.intuit.com, November 17, 2022.

LendingClub Bank and its affiliates (collectively, “LendingClub”) do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement.