It's tax season! Like all hard working American families, you're probably feeling excited and anxious about any tax refund you'll be getting in the next few weeks. The anticipation that leads up to finding out what your return will be is like Christmas for grownups. Deciding what to do with the money, however, can be a source of stress between you and your spouse. There are smart money moves — and not-so-smart money moves.
1. Pay Off Debt
Debt weighs us down. It's a heavy cloud over our otherwise happy lives. Every month, we send a chunk of our hard-earned money to a high-interest credit card or a car loan, and we dream about other ways we could use that money, especially that large amount that goes towards interest. Use your refund to pay down debt that holds the highest interest rate. It isn't as fun as splurging on a big screen TV, but you will feel better about it when you have that "extra" money in your wallet each month.
2. Save It
If you don't have any debt, consider using your refund to open a retirement account. Saving the money will benefit you in the long term and make your future much more comfortable. Even a few hundred dollars can turn into a few thousand with the right account in just a few years.
3. Refinance Your Mortgage
Mortgage rates are super low right now — in the 3.5% range. If you're paying more than that, talk to your mortgage holder about whether it would benefit you to refinance. You may be able to save a good chunk of money each month, and pay off your loan sooner than you planned.
4. Pay for College
Invest the money in your children's future by opening a 529 College Savings Plan. These are savings accounts just for college tuition and other educational costs. These plans can offer tax advantages including deductions and tax-deferred growth.
5. Beef Up Your Emergency Fund
We all need an emergency fund, but with the economy in its current state, many of us have been dipping into any backup money we had. Use your tax refund to beef that emergency fund back up, or start one if you don't have one. When the car breaks down or someone gets hurt or sick, you'll have money set aside to deal with these unforeseen expenses and won't have to resort to credit cards.
6. Vacation With It
This might seem like a splurge, but taking a vacation as a family when you otherwise wouldn't get one is a great way to spend that refund. It doesn't have to be extravagant or even to a far away location. But it should include the whole family. You will have fun, enjoy some downtime, and bond together in ways that everyday life doesn't usually allow. Your kids will benefit the most from this time with you away from the stresses of life.
Not to Do
Don't blow your refund check on a giant television. If you could afford a giant TV, a snowmobile, or some other unnecessary item, you would already own one. Once that refund money is gone, it's gone, and that glorified toy you just bought won't do anything but depreciate in value. By saving the money rather than splurging, you may even have enough cash saved up to get some great gifts for your family at Christmas.
2. Put It in Checking
Putting all the money in your regular checking account may mean you end up spending it without even realizing it. It's easy to spend money that's just sitting there on everyday splurges like coffee or take-out meals. Before you know it, that refund check is gone and you're left wondering where the heck it went. Putting that check into a savings account may keep you from mindlessly spending it.
You only get one tax refund a year. You have a million ideas on how to use it. Choose wisely.