So you got a tax refund. A nice one. Your mind is nearly exploding with what to spend it on. Trust me, I know the feeling. The loudest voice in your head has tempting suggestions: Those motorcycle mods. That designer bag. That cruise.
But you also have a nagging voice you’re trying to ignore that says you should save some of that money for things you really need.
Finance experts recommend following the 90/10 rule: Take 90 percent of your return and commit it to a responsible choice. Take what is left over and enjoy a new gadget, fancy dinner or weekend getaway.
Here are 5 responsible choices:
- Pay down that credit card balance.
By doing so you reduce that pesky interest and get that much closer to paying off that piece of high-rate plastic in your wallet.
- Add it to Your Retirement Portfolio
You can sock it away into an IRA—or make additional contributions to your work-based retirement plan—and reap the rewards of tax-deferred investing.
- Build a “rainy day” cushion.
It’s no fun putting money toward this, but finance experts recommend you keep 3 to 6 months’ worth of expenses as an emergency fund you can easily access.
- Keep it “in house.”
If you own your home, consider making an extra mortgage principal payment, which brings down the effective cost of that debt.
- Give it away.
You have more willpower than I if you can do this, but it’s actually a smart financial move. Not only do you help a good cause, you ultimately reduce your tax bill.
At the end of the day, the dilemma of what to do with a good refund is probably a good one to have. Spend wisely!