Now that tax day has come and gone and those returns are hitting your bank accounts, it is time to start thinking about what you want to do with that money. Last year, my husband and I put that chunk of change in our savings account. We felt great about having that extra cushion – especially once we found out we were having another baby.
This year we owed and won’t get our tax benefit for the new baby until 2016. But in the meantime, I want to share some great ideas I’ve used and heard over time.
Pay Off Debt
To start, I’m going straight to the bottom line: you have lived without these funds all year long. Do something that matters with your tax-day windfall. If you are carrying any, your first order of business is to pay off debt. Clear that credit card, cut that student loan, pay a chunk on an auto loan, or make an extra payment on your mortgage! When paying off debt, you’re saving money in the long run by avoiding those interest charges.
Another thought to keep in mind: If you’re depending on your credit card to to make your monthly expenses and you get a big return each year, it is time to change your deductions. This way, you pay less to the taxman each pay period and you have more money to live on throughout the year.
Without an emergency fund, you walk a thin line. None of us want to think about losing our lifestyle but the unknown is out there and there’s no sense pretending otherwise. If you don’t have at least three to six months of living expenses saved up, that’s where you need to put your tax return money. However, you don’t have to let the money just sit in a savings account. You might think about putting some of these savings into a short-tem CD (certificate of deposit) and reap those benefits.
Put Your Money to Work
Let’s say you’re living debt-free and you already have a fully funded emergency fund. If that’s the case, then it’s time to invest. Put the money toward the max contribution on your IRA or 401(k). Maybe you’re saving for your kids’ college fund? Put the money in their 529 accounts (but remember – retirement first, education second). Another wise investment strategy is a triple-tax-advantaged HSA account.
Lastly, if all this talk of savings and accounts leaves you feeling overwhelmed or plainly unsure about your current monetary picture, use your return money is to pursue a financial advisor. This is an investment that can pay off both immediately and in the long run. http://www.forbes.com/sites/janetnovack/2013/09/20/6-pointed-questions-to-ask-before-hiring-a-financial-advisor/
Kat's Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, click http://twitter.com/savinmavens.