Now that we’re beginning to settle into the new house, it’s time to get some bookkeeping done.
Besides getting our new family budget up, we also have to finish up and submit our tax return. It looks like we’re getting a little bit of a refund.
As with every year, we want to make the most of our tax refund.
Use Your Tax Refund to Boost Your Finances
You may already have filed your taxes and are expecting your refund any day now.
Before you spend a penny of it, though, I want to give you some ideas that not only will help your finances, but set you two up for building wealth in the coming years.
Create or Build Up Your Financial Cushion
One of the first priorities is making sure you two have an emergency fund or financial cushion.
Any time the unexpected happens (car breaks down, kids get hurt, job loss), having some savings will be crucial. It is all too easy to rely on a credit card with a ridiculous interest rate.
Protect yourselves by having at least one’s month of expenses in your account.
Get Rid of Your High Interest Debt
Carrying high interest debt is like walking around in quick sand – you will be pulled down.
Paying off those debts can not only give you some breathing room in your budget, it’ll also help give you some peace of mind.
Do what works for you, but I’m a big believer in the debt snowball method. If you have a big enough refund, you can get rid of a couple of your small debts in one shot.
The mental upside is that you’ve removed a couple of your monthly bills which you can now roll over to speed up your debt freedom date.
Contribute to Your IRA
Did you max out your IRA contributions last year? Don’t feel bad if you didn’t – you can use some of your refund to make this happen this year.
Opening and/or funding your IRA is a wonderful way to invest for retirement. If you don’t have account, we love using Betterment and Vanguard.
Betterment makes it easy to set up your asset allocation and have your contributions automatically invested the way you prefer. (Want More Info? Read How to Set Up Your IRA in 20 Minutes or Sign Up and Open an Account)
I use Vanguard as I have more control on my investment options. They have a reputation for customer service and low-cost investments. (Want More Info? Read Rolling Over My IRA into Vanguard or Sign Up and Open an Account)
Between the two of you, you can contribute $11,000 ($13,000 if you’re 50 or over), depending on your taxable income. That’s a huge win for your retirement!
The earlier you start contributing the more compounding interest works in your favor.
Thoughts on Making the Most of Your Tax Refund
I’d love to hear from you – what are your plans for your tax refund?