If you notice someone at the office walking around with a big smile on their face, you might think they just got that promotion they have worked so hard to achieve, or, perhaps, they just received their tax refund. Either way, it is a good reason to be happy. The ways in which you can spend that tax refund really has no end. From retirement planning to a new riding lawn mower, there are endless ways Northbrook residents can spend their tax refunds. In our last post, we discussed the ways in which you don’t want to spend your tax refund dollars, so in this article, we will outline a few smart ways to invest the money you just received.
If you read our last post, then you know that in no way should you treat your tax refund check any differently than you would a regular paycheck. Give your tax refund money purpose, don’t just stash it in your bank account or it will vanish quickly after a few trips to Starbucks and a shopping spree at the mall. Consider your current financial situation and determine your needs. As a starting point, consider the hierarchy of fundamental financial planning.
What is the one thing that can keep you from spiraling out of control in the event of an emergency? According to financial advisors, you should have an emergency fund with about six to eight months worth of saving that is easily accessible. Now, storing this amount of money could take months if not years if you are taking it from your paychecks little by little. By using your tax refund to make a significant deposit on this account, your emergency fund reaches goal much quicker.
Once you have an emergency fund established, your next step is to focus on that high-interest debt you are carrying. Use your tax return money to pay off or pay down those car loans, credit cards and even your student loans.
Depending on factors such as age, income level and financial goals, you should consider utilizing your tax refund dollars to get a head start on a tax-sheltered retirement plan. Added contributions to such plans is a great way to grow your investment.
If you are on a tight budget, you probably have a hard time finding funds to give to a charity. But your tax refund can give you a feel good moment knowing you are doing the right thing. Contributing to a charity is an outstanding way to use your capital. Choose a cause you believe in and generously give. The returns on this type of investment are not as measurable as making an investment in the financial market, but giving to a charity helps the community in great ways and you can claim it for tax purposes as well.
Getting a tax return really is a big deal, so don’t just treat it like “found money.” Put a lot of thought into the best ways in which you can spend your tax return dollars.