From paying down debt to renovating your home, there are smart ways to put your tax refund to work for you.
If you're expecting a tax refund this year, consider using the money for something that will have a lasting impact on your financial health. Depending on the size of your refund, you may be able to use it in one of the following ways:
1. Pay off your credit cards. Of all the different kinds of debt you may have, it's your credit card debt that's costing you the most in terms of interest charges. Paying down even a portion of your outstanding balance can make a huge difference to your bottom line.
2. Pay down your mortgage. Using your refund to reduce your mortgage debt can mean substantial long-term savings. Any extra mortgage payments you are permitted to make go toward paying down your principal. So you'll pay your mortgage off faster and pay less in interest.
3. Contribute to an IRA. Contributions to an Investment Retirement Account (IRA) are usually tax deductible, so now is your chance to get a head start on thinking about next year's tax return. If you don't already have an IRA, now is a good time to open one. There are many no-cost funds in which you can invest, and you can do it through almost any bank or investment institution. Of course, consult a tax or financial advisor to determine what's best in your particular situation.
4. Renovate your home. Your refund may not be enough to cover the cost of a major home renovation, but perhaps it can pay for a much-needed repair. Or, consider combining it with a home equity loan or home equity line of credit to undertake a larger project.
5. Set up an emergency fund. You never know when you'll need extra income for an unexpected emergency. If you haven't done so already, use that extra money to start an emergency fund. Placing it in a separate savings account or CD will ensure the money will be there when you need it.
As an older adult, you have probably reached the milestone of retirement. To make your retirement dollars stretch as far as possible, it is particularly important that you sacrifice wants for needs. Good money management can help you live within your means.
Retirement plans have been front page news in the past few years, mostly in negative ways. Polaroid retirees watched their pensions disappear. Enron employees were prodded to put their retirement money into Enron stock, and you know what happened to that. Then there are General Motors's current problems.