With tax season in full swing, there has never been a better time to get a head start on your finances. If you are one of the lucky taxpayers who will be getting a refund this year, you have two choices – you could waste the money on a one-time purchase, or you could put that money to work and use it to save for the future. Here are 10 smart ways to put your tax refund money to work.
- Pay off your credit card debt. If the interest rate on your credit card is 18%, using your tax refund to pay off the balance will yield an eye-popping 18% return. It is almost impossible to find a better use for your tax refund money.
- Replenish (or start) your emergency fund. If you had to dip into your emergency stash over the last 12 months, now is the time to start rebuilding. Using your tax refund for this purpose is a painless way to get a head start on your savings.
- Boost your 401(k) plan contribution. If you have been putting off adding more to your 401(k) plan, let your tax refund check pay part of the freight. Just divide the amount by the number of pay periods to determine how much more you can contribute.
- Fund a home improvement project. Investing in the roof over your head is always a smart thing to do, so use your tax refund to pay for a much-needed home improvement project. You will make your home more livable now, and more valuable later.
- Invest in your kid’s college fund. College costs are not going anywhere but up, and there will never be a better, or more affordable, time to pay for future tuition costs. Using your tax refund to save for college is one of the smartest investments you can make.
- Close gaps in your insurance coverage. Having sufficient insurance coverage in place is important, but it is not always affordable. Your tax refund gives you the perfect opportunity to close the gaps in your insurance coverage and get the protection you need.
- Start a new IRA or add to an existing one. Opening an IRA can reduce your tax bill next year and give you a jump start on your retirement savings. If you do not yet have an IRA, use your tax refund money to get one started. If you already have an IRA, you can use the tax refund dollars to add to your investments.
- Open a bank account for your child. It is never too early to teach your kids about money, and giving them practical experience is one of the best things you can do. Offer to match your child’s savings, then take them to the bank and help them open their first account. They will learn a valuable lesson, and you will feel great.
- Prepay your next vacation. Too many people fund their vacations on credit cards and suffer with debt the rest of the year. Use your tax refund to start your own vacation fund, so you will have plenty of money when your leisure time rolls around.
- Set up your own prepaid Christmas club. Although there are Christmas clubs that are good concepts, you may be interested in putting your tax refund money in an interest-bearing account so you will have even more to spend on Christmas later.
With so many tax refunds due to hit mailboxes and bank accounts, now is the time for taxpayers to get prepared. Whether you are already looking forward to your refund or just getting your tax paperwork together, having a solid plan for the money ahead of time is good for your finances and peace of mind.