It’s that time of year again and the Tax Day deadline will be here before you know it. We know that tax time can cause some stress and anxiety as you take time to round up documents and make sure you file your taxes by April 15. If you anticipate getting money back after filing your taxes this year, what do you plan to do with the extra money?
In a September 2020 Gallup survey, 54 percent of Americans said that they were currently saving at least a little money. Of those who were saving, 76 percent of respondents said that they planned to continue to add to their savings over the next six months.1 The importance of saving money and having a healthy emergency fund has been a common theme lately, as the uncertainty around the COVID-19 pandemic is a reminder to us that life can change quickly. It’s best to create a savings plan to prepare for any unknowns that the future may hold.
While it’s tempting to treat yourself and spend extra cash in your budget, consider saving some or all of your refund this year. It’s never a bad idea to prepare for the future. Check out a few smart ideas to make the most of your tax refund.
Build Your Emergency Fund
As a general recommendation, you should have 3-6 months of expenses set aside in case of an emergency. This money should be saved in a separate account, so you aren’t tempted to spend it on a non-emergency expense. However, this account should also be easily accessible in case you need to withdraw funds (like a Lake Trust Special Savings). To build your emergency fund, schedule an automatic transfer to have your tax refund deposited to your savings account.
Pay Off (Or Pay Down) Your Debt
Prioritize your debts and catch up on any past due bills, focusing on housing and utilities first. If you’re caught up on your bills, think about how you can use your refund to get caught up on other debts. Tackle your smallest loans with the snowball method or pay down loans with the highest interest rate. If your tax refund isn’t enough to pay off the entire balance of your loans, pay what you can or consolidate the rest into one low-interest rate loan.
Invest in Yourself
Save your refund and possibly earn a little more with a certificate of deposit (CD). This account gives you the flexibility to tuck away your money by choosing a term that works for your goals. If you're planning to make a big purchase in a few years, this could be the perfect place to start saving. Remember: CDs often come with early withdrawal fees, so don’t choose a term that is too long.
Start Your Down Payment
Whether you’re growing out of your current place or you’re ready for your first place, an important part of buying a home is contributing a healthy down payment. A bigger down payment could lower your monthly payments. And the more you put down on your house, the more instant equity you have in your home.
Plan for Retirement
Think of your future self and contribute to your retirement plan if you haven’t already maxed out your contributions. If you need help determining the best way to save for the future, remember that we're always here to help you with Lake Trust Financial Life Planning services. It never hurts to save a little extra for the future.
Review Your Insurance
When you first purchased home, auto, or life insurance, you may have opted for the cheapest plan just so you had some coverage. Take this time to renew your policies and see if it makes sense to spend your tax refund on increasing your coverage. Life changes quickly, and it’s easy to forget to adjust your insurance to your current situation. With extra coverage, you could protect your savings account if something goes wrong later.
Save for College
Put some money into your child’s savings account or contribute to their 529 Plan. Graduation day will be here before you know it. Start preparing now for future tuition and educational costs. We can help you put together a college savings plan if you need a little help.
Take Care Of Your Home
Tackle repairs or projects around the house that you’ve been saving for or putting off. Add extra insulation or replace the caulking around your windows to stay cozy this winter. If you’re feeling adventurous, replacing your windows, saving for a new roof, or giving your kitchen an update are projects that could even add value to your home. Check out these nine easy ways to save on a kitchen remodel for ideas on how to cut back on renovation costs.
Support Your Community
If you can afford it, consider sharing your good fortune with others. Small businesses across the country are struggling with the financial impact of the pandemic and could use your support. Spend an afternoon shopping at a local business in your community or order takeout from the restaurant down the street. Don’t forget about area nonprofits too. Donate to your favorite charity or buy some extra groceries to donate to your local food pantry. You’ll feel good and you’ll make someone else feel good too.
Save for a New Car
Maybe a new car isn’t so far away. Put your money in a separate savings account so you’re not tempted to spend it. A healthy down payment can make a big difference in the cost of your monthly payments if you plan to get an auto loan. You’ll be driving off into the sunset before you know it.
Prep For The Holidays
The holidays were just here, but the financial sting of this season can stay with you long after you take down the decorations. Learn more about how to budget for the holidays and set a savings goal. Then open a holiday savings account to prepare for another year of festivities.
Work Toward Your Goals
Take some time to create a plan for the best way to utilize your tax refund before it’s deposited to your account. Consider your future goals and use this additional income as an opportunity to work toward your plans. And remember, we’re always here if you need help.