If Uncle Sam has bestowed you with a significant tax refund this year, what do you plan to do with it?
Before you quickly book a vacation to Cancun, consider how that money could have a more lasting impact on your life. Maybe a baby’s on the way and you need to transform a spare bedroom into a nursery, or perhaps you need to catch up on some outstanding bills; whatever your current situation, you can find ways to stretch those refund dollars.
Here are some smart ways to spend your tax refund:
- If you have credit card debt, put money toward paying down those bills, especially for accounts that have high interest rates.
- Establish a college fund for your younger children, and contribute to it every year you get a tax refund, and more often if you can afford it.
- Earmark money for a major purchase you plan to make down the road. It could be anything from a down payment on a house or a new car, to installing a pool in your backyard.
- Put aside money for a “rainy day” or emergency fund – enough to cover three months of fixed expenses including your mortgage, utility bills and groceries. It’s good to know you have that money to fall back on in case something comes up like an extended illness or loss of a job.
- Donate money to your favorite charity. The organization will benefit from your generosity, and you can claim the donation as a tax write-off.
- Make an additional tax-free contribution to your retirement account.
- Invest in your future by taking a continuing education course or two.
- Make some improvements around the house, such as replacing old appliances with new, energy-efficient ones or converting an unfinished basement into a family room.
- Invest some cash in a secure account with a solid return, like a Bank5 Connect high-interest savings account or a high-yield certificate of deposit.
It’s always great to get a tax refund, but even better when you can squeeze the most out of each dollar you receive. It may also make sense for you to evaluate your tax withholding if you find your refund is sizable or a relatively large percentage of your income. Rather than wait until tax time each year to get your money back from the government, you can use the IRS’ withholding calculator to determine if any adjustments should be made to your withholding allowances. Once you know, you can file a new W-4 form with your employer, and sit back and wait for your larger paycheck. In essence, you’ll be giving yourself a raise instead of giving the government an interest-free loan! Remember to always consult with a tax advisor before making any major financial decision.