Just got your tax refund money back? Chances are good that you’re pretty excited to go out and spend that money. Unless you’re living under a rock, you know that tax refund time is usually when people really go out and spend money. Yet the question remains: should you really be part of that? The truth is that you will need to be a little more selective about your money. Building financial goals with your tax refund is possible, but you will need to make sure that you figure out what to actually do with your tax refund.
Not sure what to do? Well, here are a few suggestions.
1. Emergency Fund
If you’re expecting a lot of money, there’s nothing like putting it away for a rainy day. A lot of people don’t think about this, but when you have an emergency your credit cards are the first thing that you tap. An emergency fund makes it easier to avoid tapping your credit cards. You don’t have to contribute the entire tax refund check to the emergency fund, but the more you can put away, the better your emergency fund will grow.
2. Investment Account
It’s one thing to put your money into a conservative savings account, but what about when you want your money to grow? You shouldn’t try to tap the savings account well if you want this to happen. You need to put the money into a mutual fund or an annuity that’s part of a 401(k). Planning for retirement is just as important as planning for a rainy day.
3. Pay Off Credit Cards
If you do nothing else for the future, you should definitely try to take care of the present. This is where paying for credit cards and other things definitely come in handy. The last thing that you will want to do is end up not having your credit cards taken care of. If you’re not cautious, debt can really overwhelm you. You will need to make sure that you really think about paying off your credit cards, or at least part of them. This will in turn lower the total balance that you owe, which should make your monthly payments a lot less.
4. Put Towards Children’s College Savings
Notice the order of these things — it is actually more important for you to contribute to your own retirement than it is for you to actually contribute to your children’s college savings. This is because your kids can always qualify for grants, loans, and scholarships. You don’t have this type of protection if you were to retire tomorrow, so keep this in mind. You have some different options, depending on how far away college is. If you need the money right away, you will need to make sure that you turn to a lot more liquid options like money market accounts and even T-bills. However, if you have a long time away from when your child will enter college, you might want to go with a more aggressive mutual fund trust that has a mix of stocks and bonds.
5. Charitable Deductions
Yes, charitable deductions are still alive and well. If you want to make sure that you shave a little money off your tax bill in the future, you might want to make sure that you do some charitable contributions today. You can pick any charity that is actually 501(c)(3) eligible, as long as you get the receipt to move forward. You will need to just ensure that you get receipts because the IRS is definitely looking for those things. Most of the time, you don’t have to itemize charitable contributions in order to get the deduction. When in doubt, you will want to make sure that you run it by your favored tax professional, since this is just general advice of course! 🙂
Now, it might seem like none of these five things are really fun, or even fair for that matter. However, life isn’t always fun and you have to make sure that you really think about it from start to finish. You don’t want to always think about pleasure when it’s time to take hold of your family’s financial future. If you really focus on the tips offered in this guide, you and your family should definitely see some serious gains in your financial future!