5 Smart Ways to Spend Your Tax Return Wisely

April 18, 2014

Invest It
Instead of putting your money in a savings account, open up a brokerage account. Just like a savings account, the money in your brokerage account you are not investing will earn a slight interest rate; however, the real benefit is that you have the money there ready to invest--with all the tools and flexibility of investment choices you just don't have with a typical savings account.

Create an Emergency Fund
It is always tempting to use your refund to give yourself a little luxurious treat and while that may make you feel wonderful for a moment, it won't give you long lasting financial peace. Instead, start—or add to—an emergency fund. You should try and save somewhere between 3 and 6 months worth of post-tax income.

Pay Down Credit Card Debt
Credit cards often have large interest rates, so paying them down first will save you more money in the long run than if you use your refund to pay down lower interest rate debt such as mortgages or student loans.

Invest in a Tax-Sheltered Account
Use your refund to open up or contribute to a Roth IRA which allows your money to grow tax-free and qualified withdrawals can be taken out tax-free. You can trade stocks, options, mutual funds, ETFs, bonds and CDs in most investment accounts, which gives you even more growth potential. Also consider other tax-sheltered accounts such as 529 college savings plan.

Splurge---a Little
Let's face it, you've earned the right to splurge---a little. Use a portion of your refund to treat yourself or your family to something nice, but don't blow your entire refund. Instead of a weeklong vacation, consider using a smaller amount to treat the family to a weekend getaway or adding a small improvement to the backyard (which, by the way, will add value to your home!).

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