Smart Ways to Spend Your Tax Refund
Once your tax return is deposited into your bank account, the possibilities for spending it start racing through your mind. There are countless ways to spend it, but there is one important thing you might want to keep in mind: this refund is actually YOUR money. A tax refund is essentially money that you have overpaid to the IRS over the course of the year. So, as you think about the smartest ways to spend the refund, you may want to remember that it is not exactly like a “bonus” or “extra”. Here are some excellent ways to make the most of your refund this year:
1. Pay off credit card debt: One of the smartest ways to spend that refund money is to pay down any high interest debt that you have accrued. Consider paying down a credit card with a portion of your return and your refund will save you hundreds (or even thousands) of dollars over the course of time.
2. Invest in your retirement: Another great way to spend your tax refund is to put additional money into your retirement account (IRA, 401k or 403b). When it is time for you to retire, you can withdraw these funds tax free.
3. Start or build an emergency fund: Many Americans have little or no emergency funds for issues that come up throughout the year such as home and car repairs. Putting some of your refund in a rainy day fund may really come in handy when an unexpected expense hits!
4. Invest in your home: Investing in your home can come in many different forms…you can capitalize on low mortgage rates and refinance, using your refund to pay for closing costs. You will set yourself up for significant savings over the life of the loan. If you are not in a position to refinance, you can go green and invest in improvements to your home that will save you when it comes to your energy bill. You can also deduct these types of expenses on next year’s taxes!
5. Save for your child(ren)’s college years: Check out your state’s 529 plan and put some of your refund in one for your kid’s future college expenses. When it’s time to use it, you can withdraw the money tax free for tuition and school supplies.
6. Invest in yourself: Take a class, join a gym, put money in a health savings account or do something similar that improves your health or gives you skills that makes you marketable in your profession.
7. Donate to charity: If you have paid down credit card debt and have an emergency fund, you might consider donating some of your refund to a favorite charity. This donation can also be deducted when you go to file next year’s return.
8. Small splurge: Of course, you can use part of your refund for a vacation, new TV, computer, appliance or something else you have been longing for. There’s absolutely nothing wrong with a thoughtful purchase with some of your refund.
What do you plan on doing with your refund this year?