You should think carefully before you spend your tax refund this year. This is because you can easily blow your tax refund money and have little to show in return if you are not careful. It is all right to have a little fun with the money, so go ahead and take a small portion of your refund and spend it on a nice dinner or a new outfit for yourself; take the rest and invest in your future. The following 10 tips will show you how to use your tax refund wisely.
1. Save For An Emergency
You may not always be able to predict life events that will affect your finances -- such as a job loss, car troubles or a serious illness -- but you can prepare yourself financially by establishing an emergency fund. Use your tax refund to start a new emergency fund or to add to your existing one. You should have at least three months of expenses saved up but more is always better. The more money you have saved, the better protected you are. Keep your emergency fund money in a high-interest savings account where it will increase in value while it sits.
2. Pay Off Debt
If you have fallen behind on your bills, use your tax refund to help you catch up. If you are not behind, prepay some of your bills. By paying off some of the principal on a credit card or loan balance, you can reduce the interest charges which will save you money in the end. Pay down accounts that have the highest interest rates to save the most money.
3. Save For Retirement
Save for your retirement by putting some of your tax refund in an IRA to ensure you can retire comfortably. IRAs are a great way to grow your retirement nest egg. (To learn more about IRAs, see What You Need To Know About An IRA Investment.)
4. Invest In Your Career
Have you been thinking about going back to school to earn a few more credits or to get a certificate or license that will benefit your career? If so, now that you have your tax refund, this is your time to do it. Taking courses that will improve your career opportunities can create job stability and lead to a higher salary.
5. Improve Your Health
Use your tax refund to improve your health. Some activities that are good for your health are often not covered by health insurance, such as buying a gym membership. If you are overweight, buy a gym membership and hire a personal trainer to help you reach your weight loss goals.
Another common area that people tend to avoid taking care of is dental work because dental insurance generally does not cover the full cost of dental procedures. If you have been putting off taking care of your dental needs, use your tax refund to take care of your teeth and gums.
6. Tackle Big Projects Around The House
It can be difficult to afford house repairs when you are trying to pay your bills. Your tax refund may be the lump sum of money you need to get rid of those termites, paint your house, upgrade your plumbing or whatever else your house needs. Evaluate which house repairs are most important before starting. Choose to repair items first that can lead to more damage if not fixed.
7. Make Your House Energy Efficient
Use your tax refund to save money on future utility bills by making your home more energy efficient. Examples of how to make your house more energy efficient include installing energy efficient appliances, installing solar panels to operate your swimming pool heater, installing double-paned windows and replacing your incandescent light bulbs with LED or compact fluorescent bulbs. (To learn about the tax breaks available for energy efficient home improvements, How To Take Advantage Of Energy Tax Credits For Home Improvements.)
8. Buy Life Insurance
Buy life insurance to protect your spouse and children in the event of your death. Term life insurance policies are generally the cheapest type of life insurance policies. You can usually get a good amount of coverage with a term life insurance policy for only a few hundred dollars a year. Purchase a large enough policy to cover funeral costs and your family’s household expenses for at least a year, but two or three years is better. (For more information about life insurance, see How Much Life Insurance Coverage Do I Need?)
9. Save For A Family Vacation
Family vacations are not only fun, they provide a good opportunity for family members to bond. Saving for a family vacation can be difficult when you have other bills to pay. If you do not have outstanding debts you need to pay for, spend your tax refund on a well-deserved vacation for you and your family. If your tax refund is not large enough to pay for the vacation you want, put the money in a savings account that you can add to later.
10. Give To Charity
Charities are always in need of donations. During a down economy, charities are especially in need of money because people are donating less. If you do not have debt that you need to pay off, give some or all of your tax refund to your favorite charity. Donating to charity is not only a good deed; it is a tax write-off. (To learn more about the tax breaks for charitable donations, see The Tax Value Of Charitable Donations.)
Keep these tips in mind when you get your tax refund this year. They can help you to spend your money wisely.