Who’s thinking of some exciting way to spend your tax refund? Hot tub? Camper? That sounds fun!
But let’s look at some boring, practical ways to spend that refund you’re about to get…
- Add to your Retirement Funds – Invest in yourself! If you haven’t maxed out all of your options for retirement contributions (most American’s haven’t) then make an investment in your future self! Open or add to an IRA so that you can invest outside of your company plan. It could mean a deduction on your taxes, and you will thank yourself later.
- Start or add to an Emergency Fund – build up that cushion of funds that is there when you need it most. You cannot predict unexpected expenses or income loss. Wouldn’t you sleep better knowing you’ve got that stash to fall back on?
- Set it aside for an upcoming expense – almost EVERYONE has been delaying some sort of expense in their life that they just don’t want to pull the trigger on. New dishwasher? Finally replacing your tires? Your home hit the 10-year mark and you’re afraid of what’s going to break next? It may be time to take some of these funds and replace that “thing” that’s been half working.
- Pay off Debt – If you’ve got credit card interest eating away at your net worth, use some or all of your tax refund to pay off those balances…attacking the highest interest rate first! Even paying down a line of credit from your past projects is a smart choice.
- Charitable Contribution – If your refund is an unexpected windfall, pick a charity that’s close to your heart and make a donation. If you itemize, you could receive a future deduction in taxes.
- Home Remodel – How about that one bathroom you never did remodel? Or those countertops in the kitchen that need to be upgraded. Picking an item in your home that you’ve always wanted to replace, and that is a sure value add to your home, is not a bad way to spend your tax return. It’s a satisfying choice, and can also add value in the end. Or invest in something that saves you money over time – like more efficient windows or lighting.
- Invest in your kids – A 529 is an awesome vehicle for saving for college. In some states, in means a state tax deduction or credit. The investment growth is tax free, and will certainly ease the stress of funding college in the future.
- Start a vacation fund! – If all of the above are in check, why not do something healthy for your mind? Start saving for that one trip that you’ve been dreaming about. Happiness will lead to other successes!
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