Taxes are due next month, and you may be riding high with a nice little check soon. Before you spend your tax refund to buy more electronics or a new wardrobe, consider these ways to maximize your refund and improve your finances.
Fund your retirement
Invest all or some of your tax refund in an Individual Retirement Account (IRA). IRAs are a great way to save for retirement and offer you tax breaks while your savings grows. With a traditional IRA, your earnings grow tax-deferred and your contribution may be tax deductible. Roth IRA contributions are not tax-deductible, but withdrawals are tax-free during retirement.
Pay off debt
Pay off your car loan. You’ll reduce the total interest you would have paid and have some extra money in your account each month. Or, pay off a credit card and apply those monthly payments to another card. Consider making an extra mortgage payment too. Just one extra payment per year can significantly reduce your total interest and the length of your loan.
Invest in your home
Purchasing a new water heater, air conditioner, washer and dryer, and appliances can help reduce your utility bills and possibly qualify you for a larger tax credit next year. And, don’t forget those energy saving bulbs!
Establish an emergency fund
Generally, you should have six months’ worth of living expenses set aside in case of a job loss or an unexpected emergency. If you don’t, use some of your tax refund for this purpose. Keep these funds in a liquid investment, such as a money market fund, and withdraw only for real emergencies.
Have some fun!
Everything above is so practical that you forget you have a life to live. Take 10% of your refund and spend it on you! Splurge on something you’ve been eyeing or start planning your summer getaway. By sticking to 10%, you are allowing yourself some simple pleasure, guilt-free.
Try spreading your refund around to a couple of these things. It never hurts to squirrel away for a rainy day. If you have questions about opening up an IRA or Money market account, contact an MSC today.