Don't Blow Your Tax Refund: 3 Smart Ways to Use It
By Kia Robinson
Tax season just wrapped up and a lot of us are eagerly looking forward to our tax refunds. In two previous pieces we explored the documents you need to successfully file your taxes and the questions you should ask to ensure your taxes are filed properly. Now that tax season is over, there’s a possibility that you received a tax refund. According to TurboTax.com a tax refund is defined as the amount of money you over-pay in taxes throughout the year. While most of us will run to the nearest mall with our “extra” money, there are smarter ways to use your tax refund. I spoke with Tia, founder of Financially Fit & Fab, about a few smart things you can do with your tax refund to make your money last a little longer.
1. Pay Off Debt
Tax season is a great time to pay off some of the debt you’ve been avoiding. Instead of splurging, use your tax refund to pay off a credit card or some student loans. This will help lift the burden of your next bill and can possibly save you money in the long run. You don’t necessarily have to allocate your entire refund for your debt but you’d be surprised what a couple hundred dollars toward your debt can do.
2. Save For The Future
Saving is always a smart way to make your money stretch. You can save for something specific like a trip you’ve been wanting to take or you can save for your future by contributing to an emergency fund. “An emergency fund is three to six months of net income set aside when an emergency arises,” says Tia. “Although three to six months of net income can seem like a lot of money to save at once, if you start with a lump sum like your 2017 tax refund, it will speed things up,” Tia explained. Saving for something fun? Your tax refund is a great way to contribute to the exciting things you’ve been putting off due to finances. That trip you want to take? That car you’ve been saving up for? You can put a partial amount or your entire refund toward it.
Investing your money is a great idea and you can start by investing in your retirement. Many people think, “I’m so young. Why should I start saving for retirement now?” The answer is, “Why not?” You can start by opening an IRA. TurboTax describes an IRA as a tax-deferred account, which means you don’t have to pay taxes or interest on the account until you withdraw the money. “If you are interested in opening an IRA but not sure where to start, visit your local bank or try an online investment provider,” Tia said. “Take the tax refund and contribute the maximum amount to your IRA ($5500 if you are under 50 years old).”
“Last year, I actually used my tax refund in order to purchase my first house! It was a substantial portion of the down payment,” Tia shared. In previous years she used her refund to invest in her annual birthday trip. This just goes to show you that you can use your refund however you’d like but it’s best to make sure your money is working for you. There are very few times you’ll encounter a large sum of money at once but when you do, be smart with how you use it. Think twice about that mall run. Essentially, you want to make sure your money is working for you and that you’re always getting the most bang for your buck.
Kia is a recent college graduate that's simply trying to grasp the concept of "adulting". She enjoys hugs, quotes, a good book, and all things motivational. Her favorite book is The Alchemist and she can watch Girlfriends all day long.