It’s that time of year when at least some of us get money back from our tax returns. What should you do with the money? Of course, your first thought may be to spend it all, thinking that it’s “found” money. There are better choices, though. Here are six smart ways to use that money to achieve key financial benefits.
1. Start an Emergency Fund Right NowIf you don’t have one, this money is a great starting point. The general consensus is that you need at least six months of living expenses saved in case of an emergency or job loss. Forty-four percent of Americans could not handle a $1,000 financial emergency, according to a recent Bankrate survey found that. Getting started or beefing up an existing account will allow you to rest easier.
2. Upgrade Your Home AppliancesIf you have anything home-related that is giving you problems or about to, now is the time to fix it and buy yourself peace of mind. Also, home improvements can pay you dividends over time and you will enjoy a more comfortable home in the meantime. “Depending on the type of appliances purchased, you can benefit from renewable energy systems that run those appliances for a tax savings of up to 30% of the cost.” said Xavier Epps, CEO of XNE Financial Advising, LLC.
3. Pay Down Credit Card DebtThis is a top priority. Paying off high-interest credit cards saves you money down the road and gets that debt off your plate. Credit cards generally have a much higher interest rate than other forms of debt and carrying a lot of credit card debt lowers your credit score while also making it harder to get approved for a mortgage rate.
4. Go Back to SchoolIf your financial house is in order, how about investing in yourself? Using some of the money and taking weekend or night classes can be a chance to upgrade your professional credentials or check out other career options. You can also attend a work conference or join a professional organization related to your career.
This could be a great way to leverage that money into a promotion, raise or better job down the road. “If you attend an eligible education institution, you may be able to qualify for the American Opportunity Tax Credit and Lifetime Learning Credit (LLC) which can lower your tax bill and possibly lower your tax bill for next year,” said Epps.
5. Join a Gym or Buy a BikeThis choice allows you to improve your physical and mental health. Riding a bike can save you money on gas and car repairs while improving your physical fitness. Joining a gym will give you an opportunity to take care of your body. Studies have shown that productivity is positively impacted and related to fitness and health. However you do it, an investment in your health can reap big rewards.
6. Open a Roth IRAIf you don’t have an IRA, start one. Studies have shown that many Americans don’t have anywhere near the savings they should at retirement. If you are in that group, this is a chance to catch up. “This is good idea. This step will add to their retirement savings with some “tax-free” growth potential.” said Ernest Burley, a certified financial planner for Burley Insurance and Financial Services.