Whether we like it or not, tax season is upon us. And as millions of us scramble to file our tax returns, we are likely motivated by the prospect of a refund check that will arrive in our mailbox or bank account a few weeks after we’ve filed.
Most of us have grand plans for how we’ll spend our tax refund. Some of us may book a much-needed vacation; others may buy that new fishing rod we’ve had our eyes on. After all, spending that money can be fun. On the other hand, is there something more useful we could do with that money? Could we make another, perhaps smarter choice? Typically, the answer is yes.
The suggestions below are great ways to put your refund dollars to work for you. They may not be as emotionally gratifying as a new flat-screen TV or designer handbag, but they can boost your feelings of accomplishment, as well as your long-term financial outlook.
- Start an emergency fund
Having a stash of cash to cope with unexpected emergencies—such as a leaky roof, car repairs, or job loss—isn’t just good for your financial health. It can also help you breathe easier during stressful times. As a rule of thumb, your emergency fund should have enough accessible cash to cover three to six months of essential living expenses, such as rent, car payments, child care, utilities, and that leaky roof. Your tax refund can go a long way toward building up your emergency fund.
- Chip away at credit card debt
How liberating would it feel to wipe out the credit card balance that ballooned over the holidays? According to a 2018 study by NerdWallet, the average American household is saddled with more than $15,500 in credit card debt and pays more than $1,100 annually in credit card interest! If it’s not feasible to pay off your entire balance, you could still use your tax refund to make a sizable payment. If you have multiple credit cards, dedicate your money to the card balances with the highest interest rates. By putting a dent in what you owe, you’ll begin to see the light at the end of the credit card tunnel.
- Open a Roth IRA
What better way to put your after-tax refund dollars to work than to grow your retirement nest egg? In 2019, eligible individuals can contribute as much as $6,000 (or $7,000 if you’re older than 50) to a Roth IRA. In a Roth IRA, your contributions grow tax free, and you can generally make tax- and penalty-free withdrawals after you reach age 59½. Whether you’ve just started to save for retirement or you’re a longtime contributor, taking advantage of a Roth IRA is an invaluable savings strategy.
- Give your home a facelift
Home improvement projects come in all shapes, sizes, colors, and price ranges. Using your refund to renovate an outdated bathroom, replace an inefficient furnace, or spruce up walls with fresh paint is a win-win proposition. You’ll enjoy the comfort of your new surroundings, and your home’s resale value could increase. Real estate experts say that kitchen renovations tend to offer the most return on investment when you sell, but making minor improvements over time can also put profits in your pocket.
- Invest in you
Make no mistake, a tax refund is money that you earned. It belongs to you; the government just borrowed it for a little while. So why not reap the rewards of your hard work by making an investment in yourself? Enroll in an online course that will help you take the next step in your career. Sign up for a fitness program that will refresh your body and mind. Enroll in a cooking class or learn to play the piano. You may find that personal growth brings you just as much gratification as financial growth.
- Give back
Donating to your favorite charity may not be at the very top of your list—particularly if you live on a fixed budget. But donating to a charitable organization has numerous benefits. You’ll delight in helping those who need it most and in giving your community a boost. You may also reap a healthy dose of personal satisfaction. Plus, you can claim the donation as a tax deduction if you itemize when you file next year.
These are just a few of the ways you could make the most of your tax refund. We can discuss your situation and figure out what may work best for you and your situation. Email me at firstname.lastname@example.org to get in touch.