At this point, tax season is well underway. Whether you’ve already filed your taxes, or you’re still working on gathering all the information, you may already be thinking about your tax return. How much will you get? When will it come back? Where and how should you spend the money? Many consumers may be tempted to splurge. But we’re here to offer smart, and financially responsible, ways to spend your tax returns that won’t result in buyer’s remorse.
6 Smart Ways to Use your Tax Returns
The way you use your tax return can have a big impact on debt elimination and improving your financial situation overall.
- Pay off outstanding debt: Take the opportunity to make a dent in your credit card debt. While you are probably making monthly payments on your credit card, if you continue to make just the minimum payment, financing the debt with interest can be harmful and costly down the line.
- Contribute to your emergency fund: Building up a financial emergency fund is critical. To get started, aim to save enough to cover 3-6 months’ worth of living expenses. This includes bills (rent, mortgage, etc), food, utilities, insurance, transportation, childcare, and more. An emergency fund is a great tool to allow peace of mind in the event of the unexpected.
- Create a retirement savings account: Even if you already have a 401K plan with your employer, consider creating your own account. It’s a good way to have more control over your investments and to regularly contribute to them. The sooner you begin saving, the more time the money has to grow.
- Start a college savings plan: Investing in education is important, and it’s no secret that college is expensive. College debt can add up very quickly and take years to pay off. Avoid credit problems by saving early.
- Invest in boosting your income: Invest in your career. Spending money on professional education, new technology or tools for your business can go a long way in boosting your earning power.
- Start a repair project: Do some maintenance on your car or home to improve the quality and value. Use your money to tackle necessary repairs you have been wanting to make. Replace worn tires or patch leaky roofs. Some of these necessary repairs will save money in the long run, as they can cost you more if you wait. These updates can also work to prevent any unexpected disasters.