Spending Your Tax Refund Wisely
The last thing anyone wants to read about is taxes, am I right? But tax time can be a windfall for some. With April 15th right around the corner, now is the time to gather your important documents and get things done. The sooner the better! For quick and easy e-filing, try TurboTax. I have used their services for several years with no complaints.
If you are one of the lucky recipients of a tax refund this year, now is the time to make a game plan for those funds. Perhaps you were a smart early filer and have already received and spent yours. According to the IRS, the average individual refund amount people receive is $2,902. That's no small chunk of change! It is all too easy to spend this amount away without careful planning.
I am no financial expert, but I can share some ideas for smart spending of those extra funds from my own experience. Here are 5 ideas for spending your tax refund wisely this year:
1. Pay down debt. This is the single most important thing one can do with any financial windfall. In the past, I have wiped out entire balances with one tax refund and saved hundreds of dollars in interest down the road. If you have debt, be sure to apply those extra funds to any outstanding credit card balance or even a car payment.
2. Build an emergency fund. If you have no cushion of savings in the bank, one flat tire is an emergency. Grab that refund and save it in a separate account where you won't be tempted to spend it. I recommend at least $1,000 in savings for emergencies at all times if possible.
3. Retirement/College Savings. I know, boring, right? But think long term. If you have no debt and have a comfortable emergency fund already in place, it is always wise to consider the future. Consider contributing to an IRA or investing in a 529 plan for the kiddos.
4. Home Improvements. If you have some home projects to tackle or an appliance to replace, a tax refund may come at just the right time. Replacing older appliances with new models that use less energy will save money in the long run. Get a tune up for your air conditioning unit before summer hits. Consider other improvements that save energy and money.
5. Stock up on bulk food purchases. Now is a great opportunity to stock your freezer with a side of beef that will last you all year. Or invest in a local CSA for fresh produce which you can then preserve.
Some experts recommend that you splurge on something fun with a tax refund. I am not a fan of this advice, since I believe this type of attitude can later lead to financial distress. Preparing for the future and making wise spending decisions will protect you from the headache of debt. Had I taken my own advice ten years ago, my life may look a lot different today.
Don't wait for that check to arrive, make a plan for those funds today! How do you plan to spend your refund this year?