When you get a nice tax refund, it can be tempting to go out and blow the money on something fun. It can be very difficult to resist a spur-of-the-moment spending decision when you have what feels like a sudden windfall of cash, but there are plenty of ways you can make smart financial decisions with your tax money instead.
Here are some examples from a tax service in Des Moines, IA of smart things you can do with your tax refund:
- Develop an emergency/rainy day fund: Most Americans simply do not have adequate savings built up that they can access in the case of a sudden emergency or other sort of financial need. This means if you have a medical emergency, lose your job or need to make an emergency repair on your home, you’ll be forced to seek out loans as a means of making those payments instead. The high interests on these loans could put you on the road to financial ruin. It’s better to have an emergency savings fund built up instead.
- Pay off debts: If you have credit balances, this is a great way to pay them off and save yourself some money on a high-interest debt. It makes much more financial sense to do this than to put it into savings if you have a lot of credit card debt—savings will likely only give you about a one percent return, whereas you’re probably in the neighborhood of paying 18 percent interest for your credit card.
- Put it toward retirement: Do you have a Roth or traditional IRA that isn’t fully funded for the year? If so, you can use the money to get to your contribution limit for the year. And if you don’t have an IRA, then this could be the time for you to start one! Even if you’re young, it’s never too early for you to start thinking about your retirement.
- Save it for your kid’s college fund: If you have children or grandchildren, every little bit you can save for their college education will help, especially given the rate at which the price of a college education is increasing these days. You can set up a 529 savings plan, a specific type of savings account for college tuition.
- Invest: Perhaps you’ve been looking to give the stock market a try. The market has been strong lately, so it’s a good time to invest. Generally you’ll get a better ROI on investments in stocks than on savings accounts, CDs or bonds.
- Make home improvements: Have you been putting off making some much-needed home improvements? Now that you suddenly have some cash on hand, this could be the right time to make them happen. Get that new roof, install a new furnace, put in some new windows or put a down payment on a kitchen or bathroom remodel.
For more tips about how to responsibly spend your tax refund, contact a tax service in Des Moines, IA.