For many people, tax season is even more exciting than Christmas. Depending on a person’s circumstances, this can represent the largest single cash infusion of the year. So, it is important to be smart and do more than just eat out a few more times.
If a medical emergency were to strike tomorrow, or the car got wrecked, or some natural disaster struck, most folks would be out of luck and in serious financial straits. That is why an emergency fund should be at the top of the list for that tax refund. Ideally, a good emergency fund has three to six months’ worth of expenses but starting with something a little more modest is fine, too.
Pay Off Debt
This is a big one, especially for those former students. Credit cards, vehicles, houses and student loans are a vicious drain on income, so if the chance arises to pay them off, be sure to take it. Some experts advocate starting with the highest interest debt, others with the smallest principal, but progress is progress.
Consider isolating the individual student loans in the bundle and paying off one of the smaller ones. That will reduce the monthly premium by a little, almost like a self-raise. Don’t spoil it by racking that debt right back up again, though!
A little extra cash, when all the essentials are paid up, can be fun too. Maybe there is a big project that has been put off because of the cost, but still brings stress every time it’s noticed. Replacing the hot water heater, rebuilding the fence, or having the roof redone are all outstanding ideas. Or maybe it’s something a little sexier, like renovating the kitchen or putting in a hot tub. Don’t go over budget, but around tax time, the budget might just be a little bit bigger.
Save for Retirement
Most people do not have any retirement plan in place, except of course for Social Security. Politics aside, it is not the best idea to be beholden to the government in old age, and no one is going to get rich off of their pension. Consider taking some of that seed money around tax season and putting it into a retirement plan. Max out the employer’s matching plan or find a reputable company that could help you out.
Begin to Invest
The last one is the most complicated, and will require the most research, but that money could be invested in the stock market, mutual funds, or some other investment plan. Some of the best services require a threshold that is often outside of most people’s budgets, so leverage the returns to get the foot in the door. Remember to always go with something safe and reputable at first, before striking out into the unknown.