Smart is sexy. So, how sexy are you? If you’re smart enough to spend your tax refund wisely and boost your financial status, then you’re pretty darn sexy!
According to the IRS, the average 2014 tax refund was $3,034. So what are the smartest things to do with that sweet tax refund?
Here are eight exciting (and smart) ideas for you:
- Pay down debt. If you have a balance left on high-interest credit cards or car loans, put that tax refund toward paying off that debt. With average credit card interest rates at 13.66%, paying off your debt is liking earning 13.66% interest on your investments. Pay them off or pay them down.
- Boost (or begin) your emergency fund. How will you fare financially if your car dies suddenly or a tornado hits your house? Most experts advise us to have an emergency fund that will cover three to nine months of living expenses. Personal finance expert Suze Orman says have enough for eight months. I’ve always felt comfortable with six month’s worth socked away. If you need help figuring out how much to save, try this emergency fund calculator. Your tax refund might not meet your goal, but it’ll be a start.
- Prepare for retirement. The earlier you start saving for retirement, the more you’ll have when you decide it’s time to quit working and go travel. Use that tax refund to launch an IRA. Whether traditional or Roth, get one started and then keep adding a small amount to it each month. (Check contribution limits, which depend on income levels and age) If you file early, you can have that refund direct deposited right into your IRA.
- Save for college. If you have little ones, now is a good time to contribute to a 529 college savings You will be able to use that money tax-free for college bills later and might even get a state income tax deduction now.
- Invest it or start a special savings account. If your debt is paid off and your emergency fund is in good shape, you might want to begin to invest in stocks, bonds or mutual funds. Find a trusted broker or online investment firm and get started. Or…start some earmarked savings/money market accounts for specific savings goals like buying your next car, saving for a down payment on a house or going on that family cruise to the Caribbean.
- Help your kids start saving. Did you know that your child can contribute to a Roth IRA, as long as s/he has earned income from “jobs” like mowing yards, babysitting or tending the garden. You can use your tax refund to pay your child to do these chores and she can contribute it to her own IRA. Now that’s paying it forward!
- Give to charity. Got all your financial bases covered? Then spread the joy around by using that tax refund to support a local, charitable cause. What better way to show you care about your community than to give back?
- Invest in you. Maybe now is the time to take that college or adult education course you’ve been putting off. Learn a new language. Learn to draw. Master a computer program. Learn a new skill that will improve your chance of advancement at work. Investing in yourself may be one of the smartest things you could do with your tax refund.
Whatever you decide to do with your tax refund, remember that getting a large refund may mean you are having too much tax withheld from your paycheck. That’s like giving Uncle Sam a free loan during the year. Consult with your accountant or tax advisor (hey that’s us!) to determine if you need to make adjustments to your W-4.
In the meantime, be smart, be sexy, and spend that tax refund wisely.