There is nothing quite like the feeling you get when you pick up your mail and your tax refund check is tucked amongst all the other stuff. It is often that level of excitement that leads to bad decisions being made, such as using the money to go out and buy the latest, greatest smartphone on the market. It’s not until after you have spent your refund that you realize you have made a classic blunder.
If you are still waiting for this year’s refund to arrive, may we suggest 5 better uses for the money you are getting back?
1. Pay down debt
Certainly not the sexiest use of your tax refund, but one that comes with benefits that you don’t often see or feel until after you do it. Debt causes stress, and there is often a sense that it will never go away, especially when interest keeps piling on. Paying a lump sum to a credit card bill, or even to your mortgage, can help take away some of that stress, and may even reduce how much you have to pay out each month in the future.
2. Create an emergency fund
The future is uncertain, and a good job today may turn into a layoff and unemployment in the weeks and months to come. If you don’t have any type of savings, an unexpected financial issue can hit you where it hurts. Use your tax refund to create an emergency fund or pad an existing savings account. If you can have 6 months of expenses in reserve, you should be in good shape.
3. Start a college fund
Even if your kids are barely out of diapers, it’s never too early to start a fund for their continuing education. If you think tuition is expensive now, just imagine how much it’s going to cost in 10-15 years’ time. Get in the habit of adding your refund to a college account every year, and also consider putting in a few extra bucks each and every month to help it grow.
4. Refinance your mortgage
If you are stuck in a high interest mortgage, you are probably looking at the lower rates available now and cursing your luck. Why not use your tax refund to pay for the cost of refinancing to a lower rate? If you do that, you don’t have to roll those costs in, which will save you a little bit of money every month.
We are not suggesting that you hit the stock market like a high stakes gambler here. What we are saying is that you should talk to a financial adviser about making your money work for you. There are plenty of ways to get into investing that don’t require huge financial input at the start.
These are just a few ways for you to use your tax refund for good and make your money work for you. If the smartphone you have now works just fine, why bother upgrading when you don’t really have to? The tips above are a guilt-free way to spend your refund.