How to Best Use Your Tax Refund

How to Best Use Your Tax Refund

If you’re like many in today’s challenging environment, you’re probably eagerly awaiting your tax refund or stimulus check.

This extra money might come at just the right time for you and provide you some much needed money to put toward your financial priorities: bills, debt, savings, school and the like. With the average $2,900 tax refund, in addition to your stimulus check of $1,200, you can achieve a very large return on investment (ROI) when applied to long-term or high-interest debt.

Paying off your monthly bills is more important than paying down your debt (unless, of course, you’ve already paid off your bills). It’s best to ensure your month-to-month expenses are paid on time to avoid late fees and penalties.

If you have a good handle on your month-to-month bills, then focus on the next most important thing: debt. This includes auto loans, student loans, credit cards and mortgages. Our mortgage tends to account for the majority of our debt, followed by student loans, auto loans and credit cards. Use your refund to pay down your highest interest debt first.

Upgrading your home with your refund

If your debt is under control and you’re looking to upgrade your home, you can evaluate the 10 best home improvements based on their return on investment at resale or refinancing. There’s some regional variation in terms of ranking, but minor kitchen and bathroom remodels are perennial favorites that hold value irrespective of geographic differences.

You can stretch your refund even further by performing much of the work yourself. Online tutorials can guide you through everything from simple repairs to complex kitchen and bath upgrades. With many people working from home, it may be an excellent time to pursue a project.

One thing to keep in mind is that even the most highly rated home improvement projects often don’t generate a 100% return on investment. Home improvement is essentially additional consumption, and it only makes sense to upgrade your home if you desire the improvements and can afford them.

Of course, the larger the initial cost of the project, the bigger the potential loss, so it’s advisable to look at the total amount spent and recouped if you’re considering several projects that appeal to you.

One possible outlier with regard to spending on home improvements is landscaping. Many real estate agents advise homeowners that spending on upgrades to the landscaping around entry areas and embarking on a thorough cleanup of your property can lead to a much quicker sale or even to a positive ROI.

Navigating your mortgage can be tricky, especially now. If you would like to discuss your options or just do a check-in on the state of your mortgage, feel free to contact First Centennial Mortgage; we are here to help.

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