Smart ways to spend your tax refund
If you’re expecting or have already received a tax refund this year, you may be tempted to spend the extra cash in your pocket.
Whether you’re expecting a couple hundred dollars or several thousand, you can make your money go a long way if you make a plan.
Start paying off credit card debt
If you’re carrying a month-to-month balance on your credit card, consider paying off that debt before doing anything else. Even if you’re not able to pay the card off entirely, you can at least make a dent in your monthly payments and save yourself a lot in interest.
Save for a rainy day
Many financial professionals suggest having an emergency savings account of three to six months of living expenses. But to avoid the temptation of spending it, don’t put your refund in an easily accessed savings or checking account. Instead, consider setting up a separate mutual fund account or short-term CD.
Add to your personal nest egg
If you already have an Individual Retirement Account (IRA), Roth IRA or employer-sponsored retirement plan and have taken care of the first two items, consider putting the money toward your annual contribution. If you haven’t started your nest egg yet, a tax refund is a perfect way to start.
Invest in your child’s future
Investing money for the future can also include saving for your child’s education by opening a Coverdell Education Savings Account or a Section 529 College Savings Plan. Talk with your financial consultant to decide which plan fits your family best.
Take a look at your mortgage payment
You can also save money for your family by using your tax refund to make an extra mortgage payment before the end of the year. Just one extra payment can take a significant amount off your overall interest costs. If you don’t own a home but are planning to buy, consider investing your refund check until you have enough for a down payment.
Even if you receive a modest tax refund this year, don’t assume it’s too small to invest. Whether you make plans to spend the money in the coming months or put it away for the future, making a money-smart plan can make even a small refund check go a long way.