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You have options when it comes to your tax refund. Take a look at how to determine the best way to use that money. [[{“value”:”
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The majority of Americans will have their annual tax return filed in a little over a month, and many are waiting for a refund. If that’s the case for you, you may already have plans for the money. After all, it’s become a bit of an American tradition to splurge as soon as the funds are available. Before you book a vacation or buy a new wardrobe, though, take a look at some of the more underrated uses for tax refund dollars.
Invest in your home
If you own a home, you know how much maintenance and upkeep cost. If you have small, nagging jobs that should have been taken care of months ago, using your tax refund to get them completed is a smart use of the money. Here’s why: The sooner you take care of small problems, the less likely they are to become big (and more expensive) problems.
But there are also other long-term benefits to taking care of issues now.
You’ll be more comfortable. Let’s say the windows in your home leak air. Spending the money to seal the windows is likely to make you more comfortable. Whether it’s warm or cold outside, you can maintain a constant temperature throughout the house.You’re likely to save money. As mentioned, you’ll save money by catching small problems before they get bigger and more expensive. However, another benefit of making repairs now is how much money you can save on utility costs. Whether having your furnace cleaned or adding awnings over the living room windows, there are dozens of ways to improve energy efficiency.Any repairs you make now can add value. You may not be thinking about selling your home, but if you ever do, you want it to be worth as much as possible. That’s far more probable if you make regular upgrades and repairs.
While the price tag associated with maintaining a home helps explain why so many people delay repairs, staying on top of maintenance issues can save you money today and make you money in the future.
Unshackle yourself from high-interest debt
I understand the desire to splurge when money appears, but if you splurge while also carrying high-interest debt, you’ll do nothing to improve your financial condition.
Let’s say you owe $5,000 on a credit card carrying a 22% APR. If you make the minimum monthly payment of $142, it will take you nearly five years to pay the card off in full. Worse yet, you’ll part with an extra $3,107 in interest payments.
Imagine what you could do with that $3,107. You could tuck it away in a high-yield savings account and watch it grow or otherwise invest it in a way that ensures you’ll make a profit (and not the credit card company).
Build a “someday” fund
Back when my husband was finishing graduate school, one of our sons wanted to play ice hockey. There was absolutely no way we could swing the cost at that time. And even though our son played several different (less expensive) sports, I remember feeling awful for not being able to provide him with the opportunity to try hockey.
The good thing about feeling awful is that lessons learned tend to stick. What that taught me was the importance of keeping an emergency savings account in case things go south for us. However, because of situations like not being able to afford ice hockey, I’ve also gotten in the habit of keeping a smaller “someday” fund. I’m not sure what I’ll do with it, but if a non-emergency situation arises, I’ll have a small pool of money to draw from without doing any damage to our emergency fund.
Whether you’re getting $1,000 or $3,000 back this year, consider putting it away for someday.
Invest
Ask anyone sending their kids off to college or nearing retirement whether they’re glad they waited to invest. Actually, don’t bother. I can tell you.
When the finance software company Quicken surveyed around 1,000 Americans last November, 80% said they had some financial regrets. And one of those regrets? Not investing aggressively enough.
Investing is one of those things we try to convince ourselves we have more time to do. However, the younger you are when you begin, the more time compound interest has to do its thing. Here’s what I mean:
Thanks to compound interest, you’ll notice that a single $3,000 investment roughly doubles in value every 10 years. Whether you invest in a traditional IRA, Roth IRA, or are inspired to contribute more to your company’s retirement plan, time equals growth.
If you don’t have a firm plan for your refund, remember that you always have the option of investing it for your future — and watching it grow.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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