And other things you might say after receiving a tax refund.
"You just received your tax refund, what are you going to do next?" Before you answer, "I’m going to Disney World!" - have you considered all of the options that come with your sudden windfall?
The temptation to use your refund on something fun and frivolous can be overwhelming. After all, everyone enjoys a good time. But in the long run, it pays to be smart about your money.
So before you hit the theme parks or book that flight to Vegas, here are some other options to consider.
Fund Your Emergency Fund – Experts recommend having 3-6 months of living expenses stashed away in case of an emergency. This could be a layoff, unexpected medical expenses or maybe a new hot water heater. Regardless of your particular emergency, knowing you have some money saved for a rainy day gives you peace of mind that you won’t have to rely on a high-interest credit card if the unexpected happens.
Pay Off / Pay Down Debt - If you’re carrying a credit card balance, find out how long it will take you to pay off your debt if you make only the minimum payment each month. You might be shocked by what you discover. Or you could take your refund, pay off a good chunk of that balance and possibly be debt-free by this time next year. Think how liberating that would feel!
Invest in Your Home – If your emergency fund is well-funded and your credit card debt is minimal, consider investing in your home with small upgrades or repairs. Save money on your heating and cooling bills by installing energy-efficient windows. Upgrade your kitchen appliances or do that bathroom remodel. Most upgrades and improvements to your home will help increase the value, adding to your equity.
Fund a College Savings Account – Do you have school-aged children at home? It’s never too early to think about their future. Consider opening or adding to a 529 plan. See www.ok4saving.org for more details about the tax benefits.
Roth IRA – Maybe you are looking more toward retirement than college. If so, consider funding your Roth IRA account. Funds deposited into a Roth account have already been taxed so when you are ready to withdraw the funds, there are no additional penalties.
If all else fails and the urge to splurge is too much to resist, consider a 50-50 split. Use half of your windfall wisely and live it up with the other half.
Ultimately the choice is yours. Everyone loves a good time, but the results that come with being smart about your money can be just as satisfying.