Tax season can be simultaneously a wonderful and an excruciating time.
While reporting earnings and life situations to a notoriously difficult government organization by April 15 every year can be exhausting, it does ensure that you paid the right amount to your federal, state and local governments and not a penny more. However, the experts at TurboTax.Intuit.com actually recommend that you aim to receive a smaller refund each year, as a large refund means that you have been contributing too much each paycheck. The extra money that you have been contributing is then in the government’s hands for a year, preventing you from investing it or using it to pay off debt.
If you do still receive a sizable refund, the temptation can be to spend it on big ticket items, like a new TV or a new car, possibly when your current ones are still functioning well. Instead, consider any of these options.
Pay off your debt
Financial experts typically agree that you should pay off as much debt as possible before investing in your retirement and your personal savings. BankRate.com indicates that tax refund season is the perfect opportunity to knock out some or all of your debt. Specifically, Kiplinger.com recommends focusing on your credit card debt, as credit cards often carry the highest interest rates.
Build up your emergency fund
TurboTax.Intuit.com advises that a family’s emergency fund should reflect three to six months of the family’s household income. If your emergency savings are getting low from recent expenses, BankRate.com identifies tax refunds as the perfect opportunity to begin growing that fund once again.
Improve your home
Your financial portfolio is not all about liquid funds and stock investments. Your home is a large financial indicator as well. Be sure that you can get the most resale from your house by maintaining it as you own it. BankRate.com recommends using your tax refund to address maintenance issues that you might have put off too long, such as a leaky roof or outdated carpet. If you have kept up with maintenance issues, Kiplinger.com suggests investing your refund in a home improvement project; paint your walls, install a fireplace or upgrade your kitchen appliances.
Start a college fund
If you have young children and plan to help them pay for their college education, you will want to start saving early. Down the road, you will have other costs to consider, like mortgages and retirement contributions. Your tax refund is the perfect opportunity to start putting something into a 529 plan, according to Kiplinger.com.
Increase your coverage
Kiplinger.com also recommends filling gaps in your insurance coverage, both on the road and for your home. Consider an umbrella policy for your liability insurance, and consider ways to protect your home against acts of nature, such as tornadoes, hurricanes, fires and earthquakes. Insurance is a good way to help your family in the aftermath of such a situation, but something as simple as paying to have your trees trimmed could save your home from damage during a storm.
Investing your tax refund rather than spending it on something new and exciting can be difficult, but you will surely thank yourself down the road for making such a wise investment decision.
This article is presented by Colonial Chrysler Jeep Dodge of Hudson in Hudson, Massachusetts.