Cha-ching! Tax refunds are beginning to hit bank accounts and taxpayers are feeling the urge to splurge. Before dashing to the mall and indulging on that long awaited shopping spree, stop and think about your current financial status.
Last year’s average refund was about $2,776 which means you could potentially have a few thousand dollars headed your way. But don’t blow it. We have a few ways you can use your tax refund to spend smarter, save better and carry the money through the year and beyond.
- House Sweet Makeover. Home improvements will not only make a home more enjoyable, but also will increase its value and reduce taxes when it’s sold. When thinking about home enhancements, make sure to spend on capital improvements, such as building a deck, installing a hot water heater, putting in a swimming pool or adding on an addition. Basically, anything that adds value or lengthens the useful life of a home is a capital investment. As upgrades happen, remember to keep track of improvement costs. They will come in handy when it’s time to sell.
- Break the Debt Chain. This is a two-pronged approach to paying off high-interest and low balance debts. Credit cards with high interest rates can be emotionally and financially drowning; leaving payers with high balances and payments that won’t end. If tangled in a high interest debt web, use the tax refund to pay it off—or at least put a dent in it. After breaking free from the high interest web, move on to paying off debts containing small balances. Paying off debt is a step-by-step process, so come up with a plan that is convenient and efficient. If paying off small debts first is a motivator to then take on bigger debts, by all means go that route.
- Go Green. Going green is all the rage these days and it’s not changing any time soon. Whether it’s installing super energy saving solar panels on the home, updating an electric thermostat to digital or trading in that gas-guzzler for a shiny new electric car, there are no regrets in spending refund dollars on these updates. Energy efficient updates not only help the wallet (lower utility bills and gas bills), but also allow for major tax incentives. For example, there is now a federal tax credit of up to $7,500 offered to buyers for purchasing any all-electric or plug-in hybrid car (state and local incentives may also apply), as well as a huge 30 percent tax credit for installing solar panels. So, do the wallet and conscience a favor and go green in 2016!
- Fatten Up That College Fund. With some public universities charging more than $20,000 per year in tuition—don’t ask about private school—it’s always the right time to start a college fund for the future valedictorian. There are many different educational savings options to choose from such as, Roth IRAs, prepaid tuition plans and 529 plans, just to name a few. Wondering why the Roth IRA is an option – in short accountholders can withdraw the original investment prior to reaching retirement age without suffering a penalty. This means if $4,500 (yearly savings and tax refund) was put into a Roth IRA each year for 18 years, total savings would be around $80,000 plus investment growth, which is just enough to send little Johnny to State. Do the homework before settling on a savings plan.
- Emergency Fund. It’s been reported that 60 percent of Americans don’t have the means to cover emergency expenses. The bottom line is, misfortunes happen all the time. Anyone at any moment could lose a job or have unexpected health, home or car issues. The best thing a person could do is contribute a manageable amount of money each month to an emergency account. Take advantage of the tax refund by making it the first deposit in an emergency fund account, and breath a little easier.
Give your finances a boost and stretch your tax refund dollars with wise investments. What are you spending your refund on? Let us know!
Still waiting on your refund? Use the IRS Where’s My Refund tool to check its status.