Each spring, millions of taxpayers are thrilled to receive a tax refund. But this isn’t free money; you worked hard for it! Keeping that fact in mind, does it make sense to blow it on something frivolous? Or would it be smarter to reinvest it in ways that will pay off in the future?
The following five suggestions can help you leverage your tax refund, to get you in even better financial shape in the future.
Donate to charity. Yes, it feels good to help other people, but you’re also helping yourself! Next year you can claim a charitable contribution deduction on your tax return, and lower your tax liability. Of course, this only works for those who itemize their taxes.
Pay down high interest debt. No one wants to enter retirement carrying a lot of debt. For that matter, none of us want to enter next year carrying a lot of debt! If you decide to pay down credit cards or other types of debt with your tax refund, choose the account with the highest interest rate. That will save you the most money.
Boost your emergency fund. If you don’t have a lot of debt, it might be smarter to put your tax refund in a savings account. If you have a “rainy day” emergency fund on hand, you won’t have to pull out the credit card (and rack up a big debt due to interest) when life pulls its unexpected little tricks.
Use it to make more money. Could you get a promotion (and a raise) if you learned additional skills? Put that tax refund toward the classes you need! Have you thought about starting a home-based side business, but need a little start-up cash? Now’s your chance!
Put the money in your Thrift Savings Plan. Set aside the money for retirement. It will potentially earn interest if you invest it well, therefore serving you even better in the future.
Of course, it can be difficult to decide which of these options is best for you. Give us a call, and we can review your financial situation. Then, together we can make a plan, using your tax refund and other available opportunities, to get you on a better track to a secure financial future.
