Star’s Corner: 5 Smart Things to Do with Your Tax Refund
This year, the IRS expects more than 150 million tax returns to be filed, with the average refund amount totaling $2,798. If you didn’t get back quite as much as you thought you would, consider giving yourself a raise by adjusting your tax withholding to increase your take-home pay.
So, what are you planning to do with your refund? You may be wondering if you should save, spend or invest. Here are five smart things you can do once the money rolls in:
- Pay Off Your Debt
NAPW financial and investment partner GoldBean suggests that before you even receive your refund, you should take a look at your debt. They recommend making a list of everything you owe—student debt, car loans, mortgages, credit card payments, payday loans, etc. Identify the interest rates or the Annual Percentage Rate (APR). Then, take all of your tax return money, and put it all toward the highest APR debt you have. While this isn’t the most satisfying thing you could do with your refund, it reduces your interest payments so you’ll end up having more money in your pocket for other things.
- Put it in Your Piggy Bank
Save, save, save! Build an emergency fund to guard against dire financial situations and store the money in an easily accessible account. Most financial experts recommend having at least six months’ worth of backup funds in your emergency stash. Consider opening a savings account, money market account, certificates of deposit (CDs) or automatic savings plans. Consult with your banking institution and/or financial advisor to learn about what each specific plan has to offer.
- Fund Your Retirement
Your yearly tax refund is a perfect opportunity to build your nest egg. Even if you have a 401K through work, you can open your own individual retirement account (IRA). Contributing to at least one type of retirement account is crucial for retirement—especially since Social Security may not be sufficient financial support for a comfortable retirement. Whichever plan you chose, make a commitment to invest every month, no matter what. You’ll thank yourself later.
- Invest in Your Career
Benjamin Franklin once said, “An investment in knowledge always pays the best interest.” Use the extra cash to enhance your career or business. There are always new things to learn, so go for it! Continue your education, take a course and learn a new professional skill or trade. You can even go old school and stock up on great reads related to your industry and career interests. And if you need that extra push, hire a professional coach. A coach’s feedback helps you recognize obstacles you need to overcome to improve skills and grow professionally.
- Pay it Forward
A little extra money coming in won’t be missed if it’s given away to help your community or a deserving cause. It’s rewarding to make a difference in the lives of others and to know that your money has been well spent. Giving back is not only the right thing to do, it’s the smart thing to do, too. Contributions toward nonprofit organizations are often tax deductible and can typically reduce tax obligations for the following year. Be sure to check in with your Local Chapter to see what they’re doing this month to give back and discover your passion for philanthropy.
We want to hear from you. What are you planning to do with your tax refund? Are you going to save, spend or invest? Share your comments below.