5 Smart Ways to Use Your Tax Return
Minnesotans are getting back an average of $2,500+ every year from Uncle Sam (governing.com), but what’s everybody doing with it? Maybe you’ll decide to take that trip to Hawaii you’ve been needing, or maybe you’d prefer to just throw it in your checking account so it’s there for that rainy day. Either option has it’s benefits, but if you’re looking for more ways to spend (or save, rather) that influx of cash this year, here are 5 smart ways to use your tax return.
5 Ways to be Smart With Your Tax Return This Year
1. GET RID OF SOME DEBT
Short term loans or credit card debt, specifically. The high interest rates on these types of loans adds up FAST after days, months… years, and it’s a good idea to pay them off as soon as you can. A lower credit card balance equals lower amounts you’re spending on interest where paying that balance down 1,000 bucks could result in you saving hundreds of dollars in financial charges in the future.
2. FUND YOUR EMERGENCY FUND
Our lives are unpredictable. If your car breaks down tomorrow will you have the cash to fix it? Some unexpected medical expenses were just thrown your way, are you prepared? If you’re lucky enough to not have any short term high interest loans or credit card debt, you might want to think about starting an emergency fund. Find a bank that offers decent savings account rates (at least 1%) and start working towards 3-6 months worth of expenses set aside to start. This way, when life throws you a curveball, your bank account doesn’t get hit.
3. RETIREMENT ISN’T “THAT” FAR AWAY
It’s never too early to start saving for retirement. You’re in your low 20’s, just out of college, it might be easy to think that you have plenty of time to save and that you’ll “worry about it later”. While it might be true that you have plenty of time, the time you spend waiting can and more than likely will, be the difference between hundreds of thousands of dollars later on. If you’re feeling intimidated and don’t know where to start, try researching low-cost target date index funds. They allocate a variety of stocks and bonds for you, so you can “set it and forget it”. As the saying goes— the best time to start saving was yesterday, the second best time is today.
4. MAINTENANCE REPAIRS
If it’s been broken for most of the year but you just never had the extra cash to get it fixed, now is the time! Summer’s just around the corner, better service that air conditioner that didn’t quite work the way it was supposed to last year.
5. START A COLLEGE SAVINGS FUND
The great thing about saving, is that compound interest and time do most of the work for you, you just need to get started. The average cost of tuition and fees for the 2014-2015 school year was $9,139 for state residents at public colleges and $31,231 at private colleges. With the costs continuing to rise every year, future college grads will need as much help as they can get. If you’re lucky enough to be college debt free, a 529 plan might be worth looking into for your future children’s college expenses.