5 Things to Do with Your Tax Refund
You filed your taxes early and received a tax refund from the government. Will you spend it or save it?
The average tax refund for 2016 is expected to be $2,9001. That’s a substantial amount of money to fall into your lap, especially all at one time. Remember, though, your tax refund is your hard earned money so you’ll want to come up with a productive plan for your mini windfall.
Think about your specific financial situation and determine your needs and priorities. Make some smart decisions and this may be the first step to a brighter financial future.
What’s the wisest piece of tax advice I’ve ever received? Immediately move your tax refund out of your checking account and into your savings account. Otherwise, it will simply whittle away – $20 here, $50 there, and when it’s gone, you won’t have anything to show for it. Once the money’s been moved, consider these five ideas to maximize the use of your tax refund:
- Save it. Yes, that sounds incredibly boring, but expenses are a part of life and saving for them is a necessity. Think about boosting your emergency fund, your personal savings account or your child’s college fund. Unexpected emergency or not, your savings can protect you from falling off a financial cliff and offer you some peace of mind.
- Pay off high interest debt. If you’re carrying a balance on your credit card, chances are your incurring some high interest charges. Compounding monthly, rapidly accumulating interest can make it virtually impossible to keep your debt under control. Put your tax refund to work and knock down some debt.
- Take a look at your home. Could you refinance your home at a lower rate and save on mortgage interest? Consider some improvements that could help raise your home’s value, or make extra principal payments on your mortgage. Any one of these ideas is a smart way to manage one of your most important investments.
- Invest it. If you’re looking long-term, you might consider investing your tax refund in the financial markets. Make a contribution to your IRA, open a 529 plan, or maybe even a traditional brokerage account. Whichever vehicle you choose, be sure to diversify your investments, consider your risk tolerance and be conscious of your time horizon.
- Donate it. Charitable donations may not be a priority when it comes to allocating your paycheck, but with a lump sum tax refund, there may be some room in your budget. Your donation will benefit your community and you can claim it as a tax deduction next year.
These are some smart suggestions that could positively impact your financial future, but that’s not to say you can’t have some fun, too. Go out to dinner, buy some concert tickets, take your family on a day trip, or treat yourself to a new pair of kicks. The secret is a well thought out plan that keeps your savings in line and your spending in check.
1Source: SavingToInvevst.com: IRS and state tax refund and processing for 2015/2016
First Financial Security, Inc. does not offer tax services. Please consult your personal CPA or attorney to determine what’s best for your financial situation.