Be Savvy With Your Tax Refund
by Stacy Francis, CFP®, CDFA
One of the only positive aspects to tax season is your refund. A new pair of shoes, dress or a vacation are all tempting choices for us to spend our tax return money. While a small splurge is a must, these extra dollars also give you a chance to improve your finances for the long haul.
There are five important areas you can invest the money returned from Uncle Sam that will help you get ahead much more than buying that cute pair of shoes.
1. Pay off all your credit card debt-
- Paying just the monthly minimum on your credit cards is not a smart move. By doing such, you are not using credit wisely.
- Over time the amount you owe will keep accumulating, bringing the original purchases you made to be more than triple the initial cost.
- You do not build any equity by using credit cards.
- Paying off your debt will strengthen your credit rating, which then leads to a lower interest rate.
2. Open an emergency fund-
- You should have at least 3-6 months of your living expenses saved in an emergency fund for unexpected emergencies.
- A Capital One and Ally savings accounts have interest rates upwards of 1%.
- You receive 24-hour access to your funds and it takes about five minutes to open an account.
3. Open an IRA-
- The greatest advantage of opening an IRA is to invest in your retirement. IRAs offer significant tax advantages as well.
- IRAs are free to open.
- You can invest $5,500 for 2015 before April 15th, 2016. If you are over age 50, you can sock away up to $6,500.
4. Invest in yourself-
- Your biggest asset is not your bank account balance, it is actually your earning capacity.
- Spend your money on continuing education classes that will increase your marketability, promotion chances and employment value.
- You could also start your own business to bring in extra income over time.
5. Pay down your mortgage-
- More than half of your monthly mortgage goes towards paying off your interest payments.
- It provides a return on investment more reliable than anything the stock market can offer.
- If you pay more than your monthly payments, it goes directly to your principle. Hence, you can shave a lot of time off your mortgage.
Consider these five ways to spend your tax refund and you will have greater financial security now and beyond.
Stacy Francis is president and CEO of Francis Financial, Inc., a fee-only wealth management practice dedicated to investment advisory services for women, couples and those experiencing divorce. She is also the founder of Savvy Ladies®, a nonprofit organization that educates and empowers women to take control of their finances.