Today is the last day to file your taxes or apply for an extension and millions of people are doing just that.
For others, they’re anxiously awaiting their tax refunds. The ideas of how they’ll spend the money is like visions of ‘sugar-plums’ dancing in their heads. It kind of feels like Christmas waiting for that money to roll in.
But, if you want to be wise with the money, here’s a list of 9 smart ways to spend your tax refund dollars:
1. Start or Fully Fund Your Emergency Fund
If you’re getting a refund and you don’t have an emergency fund, before doing anything else, make sure you put aside $2000 towards your emergency fund. If you have started a fund but it doesn’t have the 2K you need, fully fund it to that amount before allocating any remaining dollars to other areas.
If you’re trying to get out of debt, having an emergency fund will almost guarantee that when life happens, (and we know it will) and the car breaks down, you’ll have what you need tucked away to handle the emergency. Without it you’ll keep using your credit cards to dig you out and your progress to becoming debt-free will be greatly hampered.
2. Pay Down Credit Card Debt
If you are working on paying off your credit cards, then using this money is a smart way to reduce your overall debt burden. Here’s the real issue: make sure, once your credit cards are paid off, you get rid of them. Cut them up and toss them in the trash. You don’t need them despite what you might tell yourself. Right now your goal is to improve your overall financial health and anything you could possible ‘need’ to put on a credit card is probably something that should wait until you’re financial healthy.
3. Build Up Your Long-Term Emergency Fund
Unlike the emergency fund where you keep 2K to cover those unexpected events that keep us using credit cards, this fund is to help ensure you and your family are protected if you were to lose your job or get sick. This fund should have at a minimum 3 months of living expenses tucked away. Ultimately, you want to build this fund to cover anywhere from 6 months to 18 months, depending on your particular circumstances.
4. Increase Retirement Account Contributions
Most of the people I talk with tell me they don’t put much away for retirement. They’re so consumed by their debt burden they spend most of the available resources on paying off debt. If, by chance, your debt is paid off and you have a fully funded emergency fund, consider contributing more of your income to a regular or Roth IRA, increasing your contributions to a 401(k) or putting the rest of your refund away for your retirement.
5. Take Care of Your Needs
If you have dental work you’ve been putting off because you don’t have the money or you need a repair done on your car to ensure its safety, then consider using your tax refund dollars to pay for these expenses. These are not frivolous items; they are things that are necessary for your health and safety and therefore is a good use of your tax refund dollars. Understanding the difference between wants and needs will help you to make the right choices.
6. Get A Home Energy Audit
Many states offer energy audits for free, but if you don’t live in an area where you can get one done for free, consider using some of your refund money towards getting an audit done of your home. The money you’ll save by making energy improvements will pay for itself and you’ll reap the cost saving benefits for years to come.
7. Make Home Improvements
If the roof is on its way out, or the furnace is on its last leg, it might be time to consider using your tax refund dollars towards making these necessary home repairs and improvements. Waiting to make these improvements could be more costly, so consider using the money to do what’s needed in your home and to ensure its continued value.
8. Buy Life Insurance
If you have a spouse or children who depend on your salary, you should have ample life insurance. Contact a reputable financial advisor who can help you figure out what kind of insurance to purchase and how much is needed.
9. Invest in Your Career or Business
Maybe a few courses will give you an advantage in your job or some technology will help your business grow. Using your tax refund to invest in your future is a smart way to use these dollars. Just be thoughtful about how you’ll spend this money.
Don’t get caught up in offers that seem too good to be true, like costly coaching programs promising you you’ll be making millions. All investments in your business or career require more than money. It requires your time, commitment and dedication. Choose wisely.
Getting a tax refund can be exciting, almost like finding $100 in your coat pocket. But what you do with the money is vital to your overall financial plan.
[tweetthis]It’s a once a year opportunity to make headway on your money goals. #taxday[/tweetthis]
Make the right decisions and you’ll be in even better shape this time next year.