If you are like most people, you are expecting a hefty tax refund from the IRS. With the average refund now over $3,000, there will soon be a lot of money sloshing around the economy. If you are one of those lucky taxpayers, you are probably already thinking of things to do with all that money, but you might want to take a different approach this year.
You could splurge and waste your tax refund money, but this year why not make a new start? You can use your tax refund to invest in your future and enjoy a better lifestyle both now and for many years to come. Here are 6 smart ways to spend your upcoming tax windfall.
#1. Set Up a Mutual Fund Account
You may not know it, but you can start a mutual fund account with as little as $1,000. Just shop around and look for a fund that charges low fees and provides a diversified portfolio you can use to build your future.
Index funds are particularly good vehicles for small investors. These funds have super low expenses, and they invest in thousands of different stocks. You can further maximize the value of your tax refund by setting up an automatic investment program – something you can do with as little as $50-$100 a month.
#2. Boost Your 401(k) Contribution
Contributing to your 401(k) at work is one of the best ways to save for retirement, and now that you have an extra $1,000 or two you can afford to contribute even more. Talk to your human resources manager about how to boost your contribution rate and save more in the year to come.
If you are not already doing so, you should contribute at least enough to get the full company match. If not, you are literally turning down free money. You can use your tax refund to fund your additional contributions and get a head start on your retirement dreams.
#3. Start (or Add To) an IRA
Depending on your age, you can invest up to $6,500 in a traditional or Roth IRA, but you do not need that much to get started. If Uncle Sam has gifted you with a $1,000 tax refund, you can turn that money around and make it work even harder for you.
You can open an IRA account at a brokerage firm, mutual fund company or even at your bank. Once the money is in place, you can invest it for retirement and add to it every year you have earned income.
#4. Tune Up Your Car
Tuning up your car is a great way to spend your tax refund. Not only will your ride be more reliable but you will probably use less gas as well. Clogged filters, fouled spark plugs and other common problems can significantly reduce your fuel economy and cause you to spend more than you should.
If you cannot remember the last time your car had a tune-up, it is probably long overdue. Just allocate part of your tax refund bounty to the job and call your mechanic.
#5. Make Your Home More Energy Efficient
Making your home more energy efficient is another way to spend your tax refund wisely. Replacing your traditional thermostat with a programmable one can sharply reduce your heating and cooling costs, as can sealing up leaky doors and windows and adding additional caulking around the frames.
There are other ways to make your home more energy efficient, including replacing your traditional light bulbs with LED models and swapping out that decade-old fridge with a brand new model. These upgrades can reduce your energy bills and pay dividends month after month.
#6. Upgrade Your Wardrobe
If one of your New Year’s resolutions is to move up the corporate ladder, why not invest part of your tax return in a better wardrobe? Investing in a top quality suit can really help your career by letting you project a more professional image at work.
You do not have to spend a fortune to create a great working wardrobe. In fact, you will probably have enough left over for a few fun splurges.
Getting a big fat tax refund is lots of fun, but too many people simply waste the money. The ideas listed above can help you make the most of your refund this year by turning the money from a short-term windfall into a long-term investment. +