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Are you getting a sizable tax refund this year? Rather than make an impulse purchase, take some time to think about how you can best spend it to positively impact your financial future. Check out this list of five smart ways to spend your tax refund.
Financial experts say that you should have three to six months’ worth of expenses saved up in an emergency fund. Having this much money put aside allows you to survive a job loss or some other financial trauma. If you don’t currently have a savings account, putting some or all of your tax refund in savings will give you some breathing room. Here’s how to save for an emergency fund without really trying.
If you owe money on credit cards, student loans, or a car payment, putting your tax refund toward that debt will reduce the amount of time you will need to make payments. Also, if you can, pay off one or more debts in their entirety. This will reduce your monthly expenses right away by eliminating that bill.
If you can pay extra toward your mortgage principal, you will be knocking months of payments off the end of your loan. In addition, you’ll be building up equity! Take a look at an amortization schedule to find out how much paying an extra thousand will take off the end of the loan. You might be surprised how quickly you can pay it off by sending your tax refunds in each year!
Do you have retirement funds? If not, a windfall like a big tax return can allow you to start an investment account. If you already have one, you can add to it. Talk to a financial adviser about the right type of fund for your particular situation — Roth IRA, Traditional IRA, or 401(k). You can easily get started with one of the best online investing sites.
If you have children, you are right to be concerned about how you will pay for college. Putting your tax refund toward higher education can help you boost your child’s odds of having a fulfilling and prosperous future. A 529 college savings account is one of the most popular options, but a financial adviser can help you choose the right one depending on the ages of your children and your current financial situation.
Don’t squander your tax refund. Taking some time now to decide how you will spend it can improve your financial future. Be smart and watch your wealth grow. Haven’t filed yet? There’s still time. Check out our review of the best online tax services to get started today.