Where Your Tax Refund Should Go
While it may be tempting to spend your tax refund on a weekend getaway, there could be better ways to utilize that extra cash. You could start an emergency fund, pay off a credit card, or even donate to your favorite charitable cause. Before you decide where the money will go, consider the following ideas for using it in a way that could enhance your financial situation.
14 Tax Refund Ideas
- Tackle overdue bills. Before doing anything else, it could be a good idea to pay any late bills. Whether it’s a utility bill or your mortgage payment, paying off any delinquent accounts could potentially be good for your wallet and your credit score.
- Pay down credit card debt. If you are running a balance on any card with a high interest rate, paying it off could result in some serious savings in monthly interest fees.
- Reduce other debt. High interest rates aren’t just for credit cards. If you have other debt in the form of a car loan or home improvement financing, for example, your return could help you avoid costly interest fees over the life of your loan.
- Establish an emergency fund. I typically recommend that “rainy day” funds contain at least three to six months of your monthly expenses. This money should be easy to access for life’s unexpected events – like a medical expense or a home repair.
- Contribute to a retirement plan. You could increase your contributions to your employer’s 401(k) or put money into an IRA or Roth IRA. Saving more for retirement now could help you as you work towards your retirement goal.
- Augment your insurance. If you haven’t reevaluated your insurance coverage in a while, it could be beneficial to go over all your policies with your agent. You could increase liability levels, purchase an umbrella policy, and evaluate if you need any additional types of insurance coverage.
- Add to a college savings account. If you have children or grandchildren, putting money into a 529 plan or Coverdell Education Savings Account could help make college more affordable for them. There are many ways to fund post-secondary education, though. Check out our latest blog!
- Give to your favorite charitable organization. Not only will the charity appreciate your funds, but it could help you get a larger refund next year with the tax benefits associated with charitable donations. Just make sure that your charity is registered as a 501(c)(3) with the IRS.
- Make extra mortgage payments. Paying down principal could reduce the amount of interest you will pay over the life of your mortgage.
- Improve your home. Home improvements could increase your home’s value and make it more enjoyable for you and your family. Consider replacing outdated appliances with energy-efficient ones for even more potential cost savings down the road.
- Learn something new. If you’ve always wanted to learn a new craft or you want to take some courses to enhance your résumé, your refund could give you the funding to pursue your dreams.
- Save up for a big purchase. Whether you want to save for an exotic getaway or you need a down payment for a new home, your refund could be used to start a new savings account for that purchase. We often suggest to clients that they use a separate account for this type of savings because it can be easy to spend money that is mixed in with a daily checking account.
- Fund a business venture. Do you want to start your own company – or maybe just try something on the side? While your refund may not be big enough to launch a new venture, it could help get the idea off the ground.
- Spend a little. Just because you spend your refund wisely doesn’t mean that you can’t have a little fun. If you take just ten percent of your refund – or less – you could probably go out to dinner or buy that golf club you’ve been eyeing.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. This information is not intended to be a substitute for specific, individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com.