by Mira Reverente
Get this. According to CNN Money, for the 2014 tax season, the IRS issued over 70 million tax refunds, averaging about $2,800.
With any windfall, it’s easy to spend it on a whim, on a vacation or a new wardrobe. Don’t succumb to this temptation. Have a plan even before the money arrives into your checking account. When the money gets there, don’t just let it sit. You’ll be one step closer to financial security by using your tax refund wisely.
I consider a tax refund “catch-up money” to be used for any of these:
1) Pay down debt. Start with the card that has the highest interest rate. If you an eliminate debt with your tax refund this year, good for you. If you have zero credit card debt, even better. Proceed to #2.
2) Boost your emergency savings fund. Having a safety net has saved me a number of times, from that huge plumbing bill to car maintenance issues. I can’t emphasize enough the importance of having this. That way, you won’t have to whip out your high-interest credit card every time you get hit by an unexpected bill or emergency. According to experts, aim for three to six months’ worth of living expenses. Don’t be discouraged if you’re not there yet. Just keep building this fund a dollar at a time and put it where it’s not tempting to use, say an online bank.
3) Save for retirement. If you took care of #1 and #2, you’re way ahead of everyone else. Consider opening a retirement account, if you don’t have one yet. The IRS has some comparisons of the different types of retirement accounts here. Even if you have a 401(k) through work, you can still open a traditional or Roth IRA if you meet the income requirements.
4) Invest in home improvements. I try to do some minor improvements or repairs around the house around this time of year. Last year, I had the house exterior repainted and another year, I fixed up my home office. I feel good knowing that I’m making my personal space better, making it more conducive to productive work.
5) Invest in yourself. Maybe you’ve had your eye on that language class, the painting workshop or the social media seminar? Go for it, especially if it’s relevant to your career, business, long-term goals and quality of life.
What other wise ways can you think of to use your tax refund? Sound off below or on Facebook.
Mira Reverente is associate editor of CVH and a longtime journalist whose work has appeared in many local publications. Her first book on money came out last fall. Follow her on Facebook, Instagram and Twitter, for more money savviness tips.