It’s that time of year where Uncle Sam gives back some of those tax dollars. For many, it means a boost of cash in hand. In fact, the average tax return is roughly $2,300. You can do a lot with $2,300. It can also burn through your pockets pretty quickly if you don’t have a plan for how to spend it wisely.
It’s important to consider what your financial goals are for the year. They’re different for everyone. Knowing what you want to achieve will go a long way in helping you prioritize where this extra money goes.
Here are some ideas on how to best spend your tax return and/or bonus. And yes, it includes an element or two of indulgence, because we know that’s on your mind, too.
This can be a myriad of things, including credit cards, tuition, car loan, mortgage, and medical expenses. In a previous article (Creating A Better Budget), we discussed strategies on how to pay down debt. Determine what makes sense to you and how it fits with your goals.
When you're first building an emergency fund, or saving for a large expense, it can be tempting to dip into what you've saved. It's easier to get off track if your money is readily available in your checking account.
Look, life happens. While it’s certainly not anything we want to think about, there are unexpected situations that arise. It’s always smart to allow for some cushion in the event you’re thrown a curveball.
Not only will you feel like you did something wildly responsible with your money, your future self will thank you. It’s never too early to plan for retirement. After all, the name of the game in retirement investing is time in the market. Consider funding an individual retirement account (IRA).
The cost of education these days definitely comes with some sticker shock. This is a great opportunity to invest in your child(ren)’s future by starting a 529 Plan, a tax-advantaged savings plan designed to help cover the cost of tuition. Today’s 529 Plan not only includes college but K-12 as well.
Investing in time and experiences with your family, friends or significant other has its own valuable returns. Downtime also allows you to hit the reset button, giving you a refreshed perspective on life and work. All of which can lead to more productivity and opportunity once you’re back in the swing of your day-to-day routine.
We put a lot of money toward investments that essentially support others, in hopes that we’ll benefit from their success. In actuality, you are your own best asset. Consider investing money toward learning a new skill that can strengthen your financial position or your personal well-being. Whether it’s a career development workshop, starting a new business or taking a cooking class, you can’t go wrong putting yourself first.
Here’s a good opportunity to build up your general savings. A money market account allows you to earn a little bit higher interest than a basic savings account while still having full access to your funds, including the ability to write checks. They can also be tiered, meaning your interest rate will increase when your balance rises to a specific level. This is a smart option to house your money, keeping it safe from unintentional whims, if you currently don’t have a plan on how you want to spend it.
That’s not meant to be a buzzkill by any stretch, but covering the essentials versus indulgences can actually feel equally rewarding. Maybe you need a newer car. Braces for your kids. An updated computer. Needs that can be crossed off your list will provide a sense of relief and responsibility. Which are both good things when it comes to financial stewardship.
Chances are, your home is probably your single largest financial commitment. It’s also one of your most valuable assets. Repairs and renovations not only increase your own personal enjoyment and comfort of your home, they also add value, which adds equity to your investment. Take a look around and give your home a boost where needed.
Supporting a charity of your choice or an organization in your community can bring you real joy. Investing in opportunities that create societal change can have a direct impact on your quality of life, as well as the lives of others. Giving back just feels good. Plus, it does come with tax-deduction benefits.
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