So, you’re getting a tax refund! While your first instinct might be to spend your windfall, why don’t you sit down and take a moment to consider these five ways to use your tax return that can help you reach your longer-term financial goals.
1.) Pay down your toxic debt. Carrying a credit card balance might seem harmless enough, especially if you’re making the minimum month payments. But what you might not be paying attention to is your interest rate, which could be as high as 30%! Concord Wealth Management’s, President and CEO, John Laurito explains, “Paying off a $5,000 credit card debt could save you more than $1,000 per year that you are in essence throwing out the window in interest charges.”
2.) Start a tax-advantaged savings plan. Tim Ehlers, Financial Professional explains. “Retirement and longevity are a big concern for a lot of Americans. Money you put into a Roth IRA or permanent life insurance policy is going to grow with no future taxes and that money for cash flow will not be counted as income! That can mean lower premiums for health care like Medicare that are income based.”
3.) Help your children with their college education. According to the College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities*. Jim Cote, Financial Professionals says, “If your kids haven’t gone to college yet, now’s a good time to jump start their college education fund. If your child is in or has completed college, help them pay down their student loans.”
4.) Invest in your home or real estate. Let’s face it—the real estate market is on fire and mortgage interests rates while going up, are still at historic lows. Put your tax return into a down payment fund. Or, if you already have a home, consider investing in a home improvement project that can add value to your home, such as project work on kitchens or bathrooms.
5.) Amp up your cash reserve savings. Matt Logan, Vice President asks, “What if you have a sudden unexpected change in your income—whether a job loss or a medical issue that requires you to go out on disability leave? Or you have an unplanned expense like a costly home repair? Would you be able to weather that financial challenge?” He explains most financial professionals recommend you have three to six months of cash reserve savings for these reasons, and yet according to a GoBankingRates survey**, more than half of Americans (57 percent) have less than $1,000 in their savings accounts.
And, while these suggestions help you make the most of your tax return this year, you might want to speak to a CPA or financial professional about ways to better structure your finances going forward. While it could eliminate your tax return next year, you’d be able to make your money better work for you during 2018.
* College Board: Trends in College Pricing 2017**GoBankingRates.com September 12, 2017: More Than Half of Americans Have Less Than $1,000 in Savings in 2017