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How to Use Your Tax Return Wisely

tax-returnTax season is upon us, folks. Even though some people dread this season, for many, it means a little (or a lot of) extra cash on hand. Before you go bananas and buy the “latest and greatest” gadgets, here are some practical ways to use your tax returns wisely.

  1. Pay down debt. Have an outstanding balance on a credit card? Using your tax return to pay it down can save you hundreds of dollars in interest and get you to a $0 balance faster. Paying down large debts on credit cards will also give your credit score a boost and help you with any loan applications (i.e. home loans).
  2. Set up an emergency savings fund. Every household should have an emergency savings fund of at least $1,000. This is money that virtually goes untouched unless there is an emergency. What constitutes an emergency? Didn’t expect that pipe to burst? The furnace to blow? The garage door to go kaput? That child to break their arm? The alternator on your car to go out? These are unexpected and unfortunate mishaps that can often get the best of us and our abilities to handle stress. An emergency fund will allow you to cover most (if not all) of the cost for any unfortunate mishaps that might pop up.
  3. Spend it on something you need. Have you been needing to replace that broken sliding door? How about a new roof or windows? Looking to buy a bigger vehicle for your growing family? If there are large purchases that you need to make to accommodate your family and/or your family’s home, think about putting your refund toward that and save yourself the stress of having to come up with the funds later.
  4. Give Back. Giving back to your community is always, always a good idea. Is there a church or charity organization making a difference where you live? Why not consider donating some or all of your refund to it? Not only does giving back make you feel good, but it will also show up on your tax return next year and it never hurts to have more donations.
  5. Invest in your family’s future. Investing can look several different ways. You might consider using the money to set up a tax-free investment account to use for your children’s higher education or perhaps your retirement. Real estate is also a great way to invest your money if you’re looking for a large return down the road. Consider using your refund for a down payment on a property you’ve been eyeing or simply as a down payment on your first home purchase.

It is always important to make wise decisions with money. But, if after all the practical options have been weighed out, you still have some money left, go ahead and treat you and your family to something special – Hawaii is always a good idea.

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