You filed your taxes and now you’re waiting for your refund to arrive in your account. You probably have plenty of ideas for how to use that cash, whether it’s a small amount or a windfall. The temptation, of course, is to splurge on something you’ve been wanting. Maybe you’re eyeing a new TV or a designer handbag. But what if that money, even a small amount, could go much further for you, and even make sure you’re better off financially this time next year? Make smart choices to make the most of your tax refund.
Pay Off Existing Debt
If you have any debt, you know how it affects your life. Since you have some extra funds, use them to pay down credit cards, car loans, or outstanding bills. You could even make an extra mortgage payment. You could save big in the long run, since interest will now accrue on a smaller balance. Just confirm that there are no early payment fees on the debt you’re trying to pay off, which could have the opposite effect.
Put the Money Towards Student Loan Payments
Student loan debt is crushing college graduates. To pay your loan off faster, consider using your tax refund. Tell your loan company that you want the extra money applied to the principal of your loan. If you don’t provide this notice, the loan provider may use the extra money for interest or late fees. You get the most bang for your buck by lowering that principle.
Build an Emergency Fund
No one wants to focus on the negative, but sometimes it’s bound to happen. Anything can happen that would cause you to lose your income. If that should happen, hopefully, you have an emergency fund to allow you to continue your lifestyle until you find a new source of income. If you don’t have an emergency fund, using your tax refund to start one is a smart choice. If you do have an emergency fund, add a little more to it. Invest the money in someplace that earns you at least a little interest, while still remaining accessible. A savings or money market account may be your best bet.
Add Funds to Your Retirement Account
Similarly to adding money to your emergency fund, it’s also a good idea to add money to your retirement fund. Many people save for retirement, but they may not be saving enough. Using your tax refund this way could help continue your lifestyle once you’re no longer working. If retirement is still a long way off, you have even more reason to invest. A small amount of money now, wisely invested, has plenty of time to grow.
Add Money to Your (Grand)Children’s College Fund
Whether you’re a parent or a grandparent, you want what’s best for your family members. That includes making sure they have money for college and won’t be crushed by student loan debt when they graduate. An Ohio 529 Plan can help with that. 529 Plans exist in all 50 states, so if relatives want to contribute, they can do it anywhere. According to CollegeAdvantage, the account grows tax-free and withdrawals aren’t taxed either. The funds that you put into a 529 Plan count as a tax deduction up to a certain point. The available funds can get used across the country at colleges and universities that accept financial aid.
Donate to Charity
Donating to a charity close to your heart is something you may have always said you wanted to do, but never had the funds to do it. With a tax refund, you have the funds to do so. When you donate to the charity, keep a record, as the donation likely qualifies as a write-off on next year’s taxes.
Whether you want to spend your refund on a posh spa day or your dream vacation, there’s nothing wrong with using your tax refund to do that. If you go that route, just stretch the money as far as possible. Avoid the need for instant gratification and plan ahead. For example, laptops and other electronics tend to go down in price around back-to-school time. This year’s cars become instantly more affordable when next year’s models arrive. Travel costs vary throughout the year depending on holidays, school schedules, and other factors.
Of course, we like to see people manage their money well. You may find happiness simply splurging with your tax refund. However, a little restraint can pay off. If we can help you get your finances on track for yourself or your small business, just give us a call.