HOW SHOULD YOU SPEND YOUR TAX RETURN?
Ah, the beloved tax returns: few things are as fulfilling as seeing that refund light up your bank account. According to the latest stats from the IRS, this year’s average tax return is $2,948. But the sizable deposit means you have a big
question to answer: How are you going to spend it? Should you invest it, or should you pay off debt’? Navigate your way through this decision tree to determine what exactly you should do with your tax return.
DO YOU HAVE AN EMERGENCY FUND?
Use a portion -or dll - of your refund to stash away three months of basic living expenses
Use a portion or all of your refund to stash away cash to cover three months of expenses.
Do you have enough cash to cover at least three months of expenses?
DO YOU HAVE ANY NON-MORTGAGE-RELATED DEBT?
Good work! Now it’s time to start making your money work for you.
Do you have any credit card debt?
I have student and/or car loans to pay off.
DO YOU HAVE AN IRA ACCOUNT?
Do you have any other debt?
CAR LOAN Since you are paying more Interest on your car loan than your Other debt, put your tax return toward settling this one first.
On which debt are you paying higher interest?
STUDENT LOANS Don’t lose any more money paying interest on this debt. Put your tax return toward settling your student debt first.
Look alive! Your next priority is to pay down this bad debt as quickly as possible. The high interest you are paying on your credit cards means you are literally throwing money away. Use all of your return to pay down as much of this
debt as possible.
Have you already maxed out your annual contribution?
Make your money work for you. The tax sheltering of an IRA account makes it the perfect place for you to -invest in your future. Even if your refund is relatively small, depositing it here will pay dividends in the long run.
Do you already have a 529 college fund set up on their behalf?
Consider applying a portion or all of ' your tax refund to your child’s 529 account. Maximum contributions vary by state.
Consider opening a r tax-free 529 college savings account for your child. Use a portion or all of this money to fund the account.
Does your home need maintenance or repairs?
Would you save yourself money if you refinanced your home?
Funding your home repairs is a great tax-deductible way to spend your tax refund as it will boost the value of what is likely your largest asset.
Use your refund to pay the closing costs for your mortgage refinance.
GOOD WORK! YOU CAN NOW USE YOUR REFUND AT YOUR WHIM.
HERE ARE SOME ADDITIONAL IDEAS TO CONSIDER:
Spend it on something you need, such as furniture or a car.
Open a brokerage account and try your hand at investing.
Help fund your brilliant business idea.
Buy life insurance.
Gift it to your child or grandchild.