Use tax refund to make your life better
It’s easy to see a tax refund as some kind of gift from the universe. You might even be feeling kinda proud of your “forced savings account,” to which you contribute every payday while living from paycheck to paycheck and relying on credit to make ends meet. But here’s the truth: It’s part of every paycheck you should have been getting all along. It’s not a saver’s reward. You overpaid your taxes. Plan now for how you’ll manage that check, or your tax refund could evaporate into thin air.
Here are some ideas:
1. Create an emergency fund and pay off a debt: It’s easy. Take the check to your bank, and use it to open a savings account. Then walk away and leave it alone, knowing that you have a fallback if something serious and unexpected happens that you absolutely cannot cover with your regular income. You might lose your job and need to keep food on the table and the bills paid for a few weeks while you make the transition. You may lose a friend or relative five states away and the trip is more than you can handle without going into debt. Then, when you have your emergency fund established, consider using that refund to pay off a debt like the balance on a credit card account or student loan bill. Just do it before you think of a dozen ways to fritter away that refund money.
2. Open an IRA: Using the refund to improve an existing retirement account or to start a new one could be the smartest thing you can possibly do with that refund. Once you’ve done that, it will sit there and earn a solid return each and every year, with the balance compounding and growing until you reach retirement age.
3. Invest in your future: If this tax refund is money you will not need for at least 10 years, put it to work in the stock market. Take the plunge; trust your decision; and don’t look back. Because you are investing for the long haul — not jumping in and out of the market — you can rest and relax knowing that you are making your financial future better, no matter what happens. You will be in better shape than you would have been had you spent that tax refund check wastefully. That means less money stress and fewer worries to keep you up at night.
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