Being a practical, responsible adult is hard work. That’s why, when it comes time for people to decide how to use a tax refund, it’s easy to default to an exotic trip, a pair of designer heels or a set of golf clubs that you have been eyeing for months.
But hold on, let’s pump the brakes. It’s not unreasonable to want to treat yourself to a big-ticket item. However, that refund is money you earned, not a bonus from Uncle Sam.
This year the IRS expects to give more than 70 percent of taxpayers refunds. Last year, 112 million refunds were issued, averaging $2,895. While that could add to up to many margaritas on the beach, it’s important to first consider those sometimes dreaded and boring adult responsibilities that will pay off in the long run.
Here are 6 suggestions for using your tax return and avoiding buyer’s remorse:
- Get rid of the albatross around your neck and pay down debt. This is always number one on any list about how to become financially secure. Paying down high-interest debt, like credit cards, is one of the surest ways to put you on a path to financial success. You’ll feel lighter, too.
- Not sure how you’ll pay for that new water heater when the old one finally tanks? Start an emergency fund. If you don’t already have an emergency fund, now is the perfect time to start one. Ideally, experts recommend three to six months of salary to cover expenses in case of emergency. Most people find it easier to start with a goal of saving three months, or at very least have enough set aside to cover the cost of a car repair or new appliance.
- Retirement is the pot of gold at the end of the rainbow. Make sure your pot has enough in it when you hit your goal retirement age and give your retirement account/IRA a boost.
- Your child’s education is not going to pay for itself. We all hope for scholarships but realistically, funding your child’s college education will have to come from several sources. Add to your child’s 529 account now; that piggy bank is hungry.
- You can’t go wrong when it comes to investing in your home. Make repairs or invest in upgrades that will increase the property’s value. You could also make an extra mortgage payment if you’ve paid off other, high-interest debt.
- Spend money on something that makes you happy. Whether it’s a donation to a good cause, a spa day or a trip away with your college buddies, have some fun, you’ve earned it!
If you have trouble deciding what to do with your refund or need help restraining yourself from spending the full check, put it in a drawer and consult a financial advisor. Rockland Trust’s team of financial advisors will help you stay focused on your long-term goals and steer you in the right direction.
