The average tax refund in 2014 was $2,696. Did you know that about eight out of every ten tax returns filed in 2013 got a refund? If you’re one of the lucky eight, before you run out and blow the money, consider these six ideas for smart ways to use your money.
Use it to make a Roth IRA or traditional IRA contribution for 2015. The 2015 IRA maximum is $5,500. If you are age 50 or over you can contribute an additional $1,000. If your refund is the 2013 average of $2,696, you’re halfway there. Life is expensive and retirement will be more expensive. Start saving yesterday!
Start or add to an emergency fund. A robust emergency fund is your financial security blanket. You’ll sleep better at night with the peace of mind that if the water heater goes out or you have an expensive car repair, you’ve got the cash to pay for it.
Pay off credit card or consumer debt. Still got some Christmas bills hanging around? You’re probably paying 15% to 20% interest. Pay them off.
Got kids? Contribute to a 529 plan for their college education. Just like retirement, college is expensive. The earlier you start saving the better. Plus many states have tax benefits for contributing and the money grows tax-deferred and can be withdrawn without tax if used for higher education.
Invest for your kids. This is a great way to teach them about personal finance, investing and owning shares in companies. Many investments have low minimum purchase amounts so even with multiple kids they can each have an account. Make it fun for them buy showing them what companies they own and letting them see how the money grows over time.
Buy life insurance. And if you already have life insurance buy more – because you probably don’t have enough. I know – it sounds boring. Trust me, your family won’t think it’s boring if you die and can’t earn money for the family any more but there’s life insurance that you wisely purchased so that they can continue their lifestyle.
Before you go get that new grill you saw at the hardware store or the new handbag you’ve been eyeing, do one or more of these savvy things with your money. Your future self will thank you.