The following post is from Melissa Batai
Are you among the nearly 80% of Americans who will receive a tax refund this year? If so, what do you plan to do with it?
Many people treat their tax refunds as bonus money to have fun with, but remember, that is your money that you worked hard for. You simply gave the government a loan throughout the year, and at tax time, the government gives you the money back—with no interest. When you think of your refund in that way, blowing it all seems rather wasteful.
Instead, consider ways you could put your hard earned money to work for you:
Contribute to your Roth IRA. If you’re under 50, you can contribute up to $5,500 every year to your Roth (or $6,500 if you’re over 50). Since the average tax return is just a little over $3,000 (irs.gov), you could go a long way toward fully funding your Roth IRA for the year. By making this one smart decision, you can make your money work for you for years as you earn compounding interest.
Put It In an Emergency Fund. If you need to start or bulk up your emergency fund, depositing your tax return is a great way to do so. Just make sure that you put the money in an account that is a bit challenging to access if you have trouble leaving money be.
Take Some Classes. Does your job offer you a bonus or wage increase if you take classes? If so, consider putting your money toward that goal. When I was working full-time, if I took an additional 30 credit hours, I could get a $5,000 raise. After an additional 60 credit hours, the increase was $10,000 and that raise stayed in place throughout the years I worked there. Take some money now to make a lot more money through the upcoming years is an excellent way to use your refund.
Added It to Your Child’s College Fund. The younger your child is, the better when it comes to contributing to their college fund, but it’s never too late to start. Divide the money among college funds for all of your children, or put most of it in your oldest child’s account with the plan to get caught up on the younger one’s college fund as you make additional money or receive windfalls.
Pay Down Debt. Using the money to pay down debt (and pay less interest in the long run) is a great idea. While some may argue that you should put the money on your debt with the highest interest, if you have several smaller debts that you’re paying on, why not knock them out with your refund? Then take the payments that you normally make on those debts and put them on your debts with higher interest.
Buy Something that Will Help You Save or Make Money in the Future. Is there something that you need that can save you money in the future or can help you make more money in the future? Do you need to buy a laptop so you can do freelance writing or open your own web design business? Do you want to buy a side of beef direct from the farmer so that you can lower your grocery bill over the next few months? Use your tax refund to do just that.
While a lot of people blow their tax refund, if you instead plan carefully how to use it, you may find yourself making more money from the refund for years to come.
If you get a refund, how do you use it?