WHAT TO DO WITH YOUR REFUND:
- Start an emergency fund – It is recommended that you have 3 to 6 months living expenses set aside for emergencies. What is you got hurt tomorrow and could not work? How would you pay your bills? What if your car breaks down? Using your refund to create an emergency fund could ease your mind.
- Send your money to a savings account – The IRS allows you to direct your refund to a savings account. This may keep it “out of sight, out of mind”, forcing an emergency to build for you.
- Paying off debt – most people are carrying credit card debt, usually at a very high interest rate. It may make sense to knock down the credit card debt before putting the money in a savings account earning maybe 1% annually.
- Buying Life Insurance – I see most younger families have zero protection in the event of their passing. You may feel invincible but something “could happen”. What would happen to your family if you didn’t come home tonight? Term insurance can be very inexpensive for a younger individual and your refund is a great opportunity for peace of mind.
- Look into your future for your children – Do you have a teenager that is now working? Do you know they can contribute to an IRA or Roth IRA? You can assist them in starting their own retirement savings.
- College Funding – If you have children or grandchildren, setting up a 529 plan may be a great way to help them afford higher education. In fact, the IL Bright Start and Bright Directions plans give you a 5% credit on the amount you contribute. For $1,000 contribution you could get $50 credit in IL!
- Invest in the Stock Market – Historically the stock market has provided better returns than the banks offer but that does come with risk. If you have a longer term outlook for your money, this may be a great option. Compound that with an IRA or Roth if you qualify and enjoy the tax advantages.
- Improving your career – Would a college course improve your job skills and possibly qualify you for a raise or new position? Your refund could cover the costs and you may even qualify for a tax credit when you file next year.
- Start a business with your refund – Have you ever dreamed of pursuing a passion? You don’t have to quit your full-time job. Your tax refund could provide you the money to buy inventory, create a website or an online store.
- Consider home improvements – Have you thought of energy improvements? Windows, doors, insulation and furnace qualify for a tax credit (as of 2021). What about new carpet, a kitchen or bath remodel? They can improve resale value and give you enjoyment.