Finally, tax season is over and the money is rolling back into your pocket where it belongs. So what better way to celebrate getting back your hard earned dollars than to go out on a shopping spree you deserve? Well, we can think of four alternative ways before you go out and spend that money Uncle Sam has been keeping from you all year long. So be advised as we share four smart and not so smart ways to spend that extra dollar you earned this past year.
4 things not to do with your tax return:
1. Buy with interest. So you can afford the downpayment to a new car, but can you afford the monthly payments that go along with that high interest rate?
2. Sports Packages. As the NBA and NHL are getting ready for the playoffs and baseball season in full swing, it might be tempting to purchase the sports packages and get all the latest action, but will you even watch all those games to justify the $200+ costs? If you didn’t have time watch them throughout the season, what makes you think you will have time now? Instead use your internet to watch games. Several sites offer free live coverage and espn.go.com is a great site to stay up to date on all stats, scores and records.
3. Loan it to family members. Twice, the entire return was “loaned” to a family member who just simply never repaid the “loan.”
4. Throw a big party. Do yourself a favor and when you wake up tomorrow morning ask yourself if you would have thrown that $2,000 party last night, would it have been worth the cost? Probably not. So sit on this decision for a few nights, your urge to spend on a lavish one night expense doesn’t sound as appealing as saving your money for a rainy day.
Now that you’re aware of what not to buy, let’s focus on 4 things you should buy and invest with your tax return:
1. Start (or supplement) an emergency fund. Very few Americans have an adequate emergency fund – that is, a savings account somewhere that contains money that could be used for living expenses for several months in the event of a major crisis, like job loss. Sock the return away in a high interest savings account and let it just sit there until disaster strikes. This way, the disaster won’t wreck your finances – you can just go withdraw the money and it’s taken care of.
2. Start a 529 for your children. Use that money to lay the financial groundwork for your child’s college education. A 529 plan allows you to easily invest money with tax-free growth for educational expenses down the road.
4. Startup your own business. Roll the money into things you could use to start a side business. Not only will you be able to deduct that money next year, but you’ll also lay the foundation for another income stream.
4. Do a home improvement project. Roll that money right into new kitchen cabinets, a freshened-up bathroom, repainting some rooms, or a new carpet. Home improvement projects can increase the value of your home, which is especially important if you foresee a move in the coming years.
Honestly, there are a lot of things you can do with your tax return that can set you on a strong financial path. So don’t allow greedy actions to cause money problems on the financial path you worked so hard to earn.
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