If you have a sizeable tax refund burning a hole in your pocket, put out the fire before you start splurging!
It’s tempting to go on a spending spree, especially if you have a couple thousand dollars in hand. But experts suggest you step back and figure out where you can get the biggest bang for your buck.
Do you have credit card debt that’s burdening you with high interest rates? It might be worthwhile to pay it down with some of the refund. Is your life insurance policy a bit underinsured? Upping the amount could bring you more peace of mind for yourself as well as your family.
Here are some other suggestions for using your refund:
- Set up an emergency fund. Experts recommend that you have at least a three-month emergency reserve that would cover all your fixed expenses, such as mortgage and utility bills as well as food bills.
- If you have young children, now’s a good time to establish a college fund. And if your kids are already in college, it’s likely they could still use money for tuition and books, rather than borrow to cover those expenses.
- Plan now for a major purchase later, such as a car or boat. Consider short-term savings that could earn interest, such as a certificate of deposit. Or look into interest-bearing savings accounts. BankFive has beneficial savings products available.
- Contribute to a charitable organization. Not only will the charity benefit, but you will, too, in terms of a tax write-off.
- Catch up on some home maintenance projects. Maybe it’s fixing a leaky roof or replacing a worn-out storm door. Whatever the project, now’s a good time to tackle it.
- Pay for a vacation using money from the refund rather than borrowing for the trip.
- Have you been putting off seeing a doctor or dentist because you couldn’t afford it? Well, now you can. Isn’t it worth investing in your health?
- Bulk up your retirement account with additional contributions. And if you don’t have an account, start one right away.
- Spend some money on furthering your education, especially if it could help in furthering your career.
Here’s something else to consider — if you have a large refund, you may want to consider having your withholding allowances adjusted in your paycheck. If you think about it, the more money coming out of your pay is just like giving the government an interest-free loan. Why not turn that around and give yourself a little raise each pay day? Remember to always consult with a tax advisor before making any major financial decision.