Tax season is upon us once more, and for many of us, that means more money in our pockets. After you file your taxes and get that boost in our bank account, it is time to start thinking about how you want to spend your money. Before you go out on that impulse-trip to Vegas or buy ten pairs of shoes, it is wise to take a step back and address your needs and wants. Receiving a tax return is an excellent way of supplementing your financial plan for benefits in the long term. Of course, to reap the most out of your tax refund, it is best to consult a trained expert, such as those found at Community Tax. Below are a few smart ways to spend your tax refund.
Pay off Debt
Most people experience debt at some point in their lives. It may not seem as fun or spontaneous at first, but using your tax return to pay off some of your debt is a great way to move forward in your financial life. If this is something you are interested in, consider organizing your accounts first to decide which debt you should pay off first. Typically, there are two ways to do this: the first is to pay off your smallest debt first. This is the simplest way and arguably the most psychologically satisfying, as it allows you to decrease the amount of truant accounts you have. The second and most cost-efficient way is to pay off your debt based on interest. List your debt by order of interest rate and pay the account with the highest interest rate first to save more money in the long run. It may not seem as exciting now, but living debt free will end up saving you more money to do fun things in the future.
Create or Manage an Emergency Fund
Many people neglect to create an emergency fund to prepare for any unexpected cost. It may seem trivial now, but you do not want to end up in a situation where you suddenly have no money to pay for an immediate and necessary cost. In order to do this, you are best advised to start an emergency fund. Just one major expense can start you down the path toward financial disaster, such as losing your job. Give yourself the gift of peace of mind by maintaining a savings if such an incident occurs.
Invest in Your Retirement
Again, your retirement may seem far away, but you can never start too early to build up your retirement. Start contributing to a Roth IRA to get huge tax benefits and accrue more money over time.
Invest in a College Fund
College tuition is higher than ever before, and it is only expected to rise. If you desire to help send your kids to college when they grow older, consider a college savings account to get them started. Instead of relying on the limited number of college scholarships available, consider investing in a 529 College Savings Plan. This plan is a federally approved tax break that can be used for all college expenses. Most plans are operated individually by the state, so you should consult a professional as to what tax breaks you should expect. If you have a particular school in mind, research whether the college has its own savings plan. There are many benefits to starting a plan early, so it’s best to start as soon as possible.
Plan to Buy Something You Desire
Using your tax refund doesn’t have to be all work and no play. In fact, there is no reason you can’t get yourself a little something extra for earning your refund. However, it is essential that you don’t get carried away. If you have been itching to go on that trip to Barcelona, make sure you plan ahead so that you make wise financial choices. If you feel like your money is burning a hole in your pocket, deposit a portion into your savings account and use a bit yourself to buy that new leopard jacket you have had your eye for the past month or get that drone you have been dying to purchase. The key is always to plan ahead.
It’s always exciting to receive a tax refund, but don’t blow that chunk of change on something frivolous. Consider spending your tax refund in a strategic manner that pays off in the long run, whether that be in the form of financial savings or treasured memories.