It’s that time of year again – tax time.
If you’re one of the millions expecting a tax refund this year, chances are you’re already thinking about how to spend that chunk of change. Maybe you’re thinking of buying a bigger TV, taking a well-earned vacation or upgrading your smart phone or computer.
All those ideas sound rewarding and exciting. But there are some smarter and more practical (but not quite as fun) ways to use your refund that might put you in a better financial situation and/or help others.
1. Replenish or start your emergency fund. Life happens. The washer breaks. You have to replace your car. Your spouse gets laid off from work. We usually don’t see life’s curveballs coming and when they do, it’s nice to be prepared. Having an emergency fund can help relieve some of the stress when hit with unexpected expenses or hardship.
Ideally, you should have about six months of expenses socked away. But not everyone can afford to do that and still survive day to day. So, consider taking all or some of your tax refund to start an emergency fund. This might be the only time of year you get such a large sum of money, so this is a smart use for it.
Since it wasn’t part of your regular paychecks, you likely didn’t plan on using it to pay monthly bills. So, you won’t even miss the cash. Put it in the bank for emergencies so when a “rain day” comes, you’ll have some money to deal with it.
2. Invest in your future. Depending on your age, retirement might sound far away. Or, it might be knocking loud at your door. Regardless, you know you won’t work forever. When the time comes to stop doing the job you’re doing, you’ll need money to live on for the rest of your days.
A forward-thinking use for your tax refund is to boost your retirement savings, so that the money can continue growing while you’re still earning an income for today. Consider investing the refund in an IRA, Roth IRA or other retirement account. You’ll thank yourself later.
3. Donate. Maybe you’ve always wished you had enough money to be able to donate to important community causes or organizations. Now, you do. Consider using all or part of your refund to a worthy cause, your church or a non-profit organization. Your gift will be appreciated and you’ll feel good about being able to help. Plus, you might be able to write off the donation on your taxes the next year.
So before you go out and blow all of your refund, give some thought to putting it to good use. Consider using part of it for something fun now, then take the rest to invest in your future or the future of others.