Turn Your Tax Refund into Savings
Many people view tax refunds in the same way they do their Christmas bonus: Fun money.
You hear people telling each other what they're going to do with that extra chunk of change. I've heard everything from buying a pool to paying for a vacation to splurging on a twelve course meal. While these are all great, they certainly don't help you financially.
Well R.I.A. FCU, in conjunction with America Saves, wants to help you turn that tax refund into savings. Here are some ways you can save using your tax refund.
Pay Off Your Debt
Do you have loans to pay off? How about credit card debt? Use your refund to dig yourself out of that hole. Consider your interest rate and how much money you'll save by paying off your debt, or even just part of your debt. This has the added benefit of increasing your credit.
Open Savings Accounts
Another great way to use your tax refund is to invest that money into savings accounts, especially interest earning ones. You can create as many accounts as you need or want. I would suggest having at least two: One for emergencies and one for financial goals.
In the case of the emergency fund, you should save at least 3-6 months' worth of living expenses. This will help when the unexpected hits, especially if the unexpected involves losing your job. In the case of financial goals, use it to save for larger expenses like a new car or dishwasher. Keeping this money in savings accounts will make it less tempting to use on something else.
If you can live without your money at hand, you can also sign up for a super share savings account. This type of savings account has higher dividends, but you have a limited number of withdrawals per month. Open this type of savings account if you want higher interest rates and you know you won't be taking from it very often.
Save for Retirement
Retirement sounds great, but you'll need to live off of something. Use your refund to set up an individual retirement account (IRA). There are different types that you can choose (Traditional, Roth, SEP, Custodial, etc.). Each has their pros and cons, but no matter which you choose, you will get a high rate of return and possible tax advantages. Not to mention that you can open an IRA even if you have a 401(k).
Invest in Share Certificates
Use your extra cash to invest in share certificates. Depending on how much you can invest, or are willing to invest, you can make quite a bit of money in the long run. These shares earn interest as they mature, but you have to wait for them to finish maturing before you cash in. That can take anywhere from 91 days to 5 years. Naturally, the longer you wait and the more you invest, the higher the dividends.
If you plan on sending your children to college, start saving now. Consider a 529 account, legally known as "qualified tuition plans." There are two types of plans: pre-paid tuition plans and college savings plans. These plans are sponsored by states or state agencies and all states sponsor at least one type of plan. In addition to saving for college, these plans come with some tax benefits - they are not subject to federal tax, and in most cases, state tax.
Invest in Your Home
You can use this money to invest in your home. You won't be able to pay for the big things (that's what your financial goals savings account is for), but you'll be able to paint a few rooms, replace a sink, or spruce up your yard. These little things add to the value of your home.
Need more incentive to save?
Compete against a friend. Set goals and incentives for reaching those goals. Involve your family.
If you need something more concrete, you can sign up to be a part of America Saves Week, which runs February 22-27, 2016. It offers a community of individuals that encourage and support each other to set a goal, make a plan, and save. They also offer resources and tips to help you reach your savings goals.