Thursday, December 26, 2013, AM | Leave Comment
A tax refund can be an unexpected windfall that can be easily squandered without proper planning. People tend to view their tax refund as a one-time lump sum payment instead of as earned income. As a result, there is a tendency to earmark a tax refund to fund a new purchase or to use the money to splurge.
Here are five ideas on how to spend your tax refund to ensure that you are making the most of your money.
Pay down your debt
If you are not paying your credit card balance in full every month, credit card debt can quickly accrue and leave you saddled with high interest payments. High-interest credit card debt takes money out of your pocket. Paying off your high-interest debt can help reduce your interest payments, lower the balance on your debt and may help improve your credit score.
Establish an emergency fund
Life tends to be full of unexpected twists and turns. There are little things that happen everyday that can leave you scrambling for money. You could be involved in a car accident, or face a medical emergency. It is important to have money set aside to deal with these rainy day situations. Your tax refund can be a good source of money to help you start building an emergency fund.
Invest in your family’s financial future
Contributing your tax refund to an individual retirement account can help you start planning for your financial future and potentially lower your tax bill for the next year. If you have children, contributing to a state sponsored college savings plan can help defray future educational costs. The money in the account accrues tax-free and with compounding interest can grow substantially by the time your children begin college.
Whether you choose to invest your tax refund to boost your retirement funds or to save for your children’s education, there are multiple resources that provide investing tips to help ensure that you are maximizing your investments.
Invest in your personal or professional development
A tax refund cannot only help you invest in your financial future, but it can also help you invest in your personal or professional development. The money from your tax refund can help you pay for tutoring in that foreign language that you have been hoping to learn or to take that class at your local college that will help boost your professional prospects.
Another idea is to consider donating your tax refund to an organization that does good work for other people. There are a plethora of local and national organizations that can use your money to help others. Think about the issues that you are passionate about and find an organization that focuses on addressing those issues. In addition to the benefits you gain from helping others, donations to charity are tax deductible and can be used to reduce your tax bill for the next year.
While your tax refund may be one-time, one-off payment, it is important to carefully plan for how you want to use it. Your tax refund can help you reduce your debt, invest in your future, or support organizations and causes that you are passionate about.Facebook.com/doable.finance