Smart Ways to Use Your Tax Refund
Despite the predictable nature of federal tax filing season, an unexpected tax refund can ignite surprising financial behaviors in taxpayers. A sudden windfall can tempt even the most frugal-minded individuals to spend the entire amount on lottery tickets or an unnecessary shopping spree. There’s nothing wrong with a splurge or two, but consider using most of it in a way that’ll benefit you long after the last dollar is spent.
Here are a few suggestions.
Catch Up on Home Maintenance and Repairs
Spending your tax refund on delayed home maintenance and repairs can prevent costly emergency calls. Hire a professional for specialized tasks such as trimming overgrown trees or performing electrical repairs. You might be one strong wind gust or storm away from a significant expense. Tree limbs surrounding your home can snap, causing severe damage to your roof, cars parked in your driveway, or even your neighbor's property.
Flickering lights, light bulbs that burn out quickly, and dead outlets could be signs of an underlying electrical problem. Ignoring these issues could prove harmful. Contact a qualified professional to ensure the safety of your home. Investing in service repairs now is a smart financial move.
Give Your Individual Retirement Account a Boost
An extra deposit into your retirement savings plan can offer significant returns. The more money in your account, the more you can experience the benefits of compounding interest. Contact your employer’s retirement plan administrator to learn how you can make deposits separate from your paycheck.
If you’re at or near the annual contribution limits of your employer’s plan, consider opening a Roth IRA. This tax-advantaged account can help you meet your retirement and future college savings goals.
Kickstart An Emergency Fund Account
If you lost your job tomorrow, how would you pay your bills? A six-month emergency savings fund account could keep you afloat while you look for another job. According to the Bureau of Labor Statistics, it’ll take approximately five months to secure your next position.
Figure the savings goal for your account by multiplying your total monthly household expenses by six. Depending on your income, it can take years to fund your account. But, using half of your tax refund to open a savings account could shave months off your timeline. Continue making regular deposits to build the safety net needed to avoid turning to high-interest rate credit cards to pay your bills.
Improve Your Job Skills
Invest your refund check in skills development training. Completing a short Certificate program could help advance your career and increase your income without working additional hours. Employees with specialized skills also stand out in a competitive job market.
Short courses can help you develop marketable skills such as computer programming, project management, and business Spanish with many costing less than $500 per certification.
Pay Off Debt
Credit cards, student loans, and other debts can keep you from reaching your financial goals. Paying the minimum required payment each month can keep you in the debt cycle for years. Use at least half of your refund to reduce or eliminate the debt with the highest interest rate. The less you pay in interest, the more money you’ll have available to save for the future.
We Can Help
Your goals and financial priorities should guide your decision on how to spend your tax refund. If you need additional time to weigh your options, deposit your refund in a Credit Union of Colorado Money Market Plus account and watch it grow*. This account pays a tiered interest rate based on your account balance, allowing you to reach your financial goals sooner. The more you deposit, the higher the dividend rate. Open an account today!
A Credit Union of Colorado Roth IRA has a minimum opening deposit of just $25, so it’s easy to get started on your retirement savings. Learn more about IRA investment options.
* Money Market Plus account has a $2,500 minimum opening balance. Higher dividend rates are associated with higher minimum balance requirements. Annual percentage yield (APY) is subject to change.