If you are anticipating a substantial tax refund, it’s easy to create a short list of high dollar items you’d like to buy. There’s nothing wrong with a treat, but there may be some smarter ways to use your tax return that get you a few steps closer to your long-term dreams.
Consider using your tax return to:
- Pay down outstanding debt - From credit cards to student loans, any money you are paying towards debt is money you can’t spend elsewhere. Even if your tax return cannot cover the full balance, it may help you jump start your debt payoff plan.
- Pad your emergency fund – A fully funded emergency fund takes time and patience to establish. Any additional money you can add helps you reach your goal faster, and provides peace of mind in the event of an emergency.
- Put funds away for the future – Contribute your refund to your retirement plan. Every little bit can help secure the post-career life you want. You may also want to consider opening a CD or Money Market account, allowing your savings to grow throughout the year.
- Plan for higher education costs – Your kids or your grandchildren are only getting older, and you’re going to be looking for colleges before you know it. Use your tax refund to start a 529 plan for the children in your life.
- Push yourself – Purchase a book to feed your mind, start a business or blog to earn extra income, or attend a conference to network and improve your skills. Investing in yourself is always a smart move.
Bonus tip: Receiving a tax refund isn’t necessarily a good thing, it means you overpaid your share of your tax burden over the year. Think of it this way – you aren’t receiving free money; you are just getting your own money back. For more income each paycheck, consider adjusting your W-4. Consult with a tax professional to determine the appropriate withholdings to achieve your goal.
To learn more about taxes, check out Hancock Whitney Financial Cents for Adults.