5 ways to make your tax refund work for you
Do you remember how you spent your tax refund last year? We'll wait…
If you're like many folks, that chunk of change dwindled away on incidental items, leaving you wondering where exactly it went. Good news: you can allocate your tax refund in a meaningful way – a way you might actually remember for years to come. Depending on your responsibilities, financial situation and life goals, consider one (or even a mix) of the following action plans.
Demote your debt
Getting a few extra hundred (or thousand – lucky you!) dollars has the tendency to make anyone starry-eyed. Instead of spending your refund on something you don't really need, take this financial boost as an opportunity to pay down debt. Maybe make an extra principal payment on your mortgage, take a bite out of your student loans, or say goodbye to a credit card. It's up to you!
Emergencies are the worst
Not to be a Debbie Downer, but everybody needs an emergency fund. This is your safety net if something unexpected happens (ahem, car troubles). It's your saving grace if your income takes a hit while you're between jobs. Allocating your tax refund to an emergency fund is one of the most financially responsible things you can do with it.
It's like finding a 20 in your pocket – in 20 years
Depending on your age and life goals, investing in a tax-sheltered account might be the best use of your refund. This could take the form of a pre-taxed Roth IRA, or maybe a 529 college savings plan for your children. You don't have to figure it all out yourself, either. Get in touch with a financial professional who can direct you down the right path.
Needy no longer
We're sure you have a list of them, and making a much-needed home improvement such as replacing the vacuum cleaner or a new set of tires is a great use of your tax refund. You can't predict the unexpected, but you can take some precautionary measures while you have cash on hand. Buying the thing you need now might mean you don't have to give it to your spouse later this year as a "Christmas present".
Spread some love
If you're in a sweet spot financially – meaning you're debt-free, your emergency fund is stocked, and you're regularly contributing to a retirement fund – then you may be a bit more free-handed with your tax refund. Even so, you can still be intentional by spending on something that's meaningful to you or your family. Consider making a lasting impact by donating to your favorite cause or charity.
