“An investment in knowledge always pays the best interest,” advised Ben Franklin, and given our inclination to act first and think later each time a refund check lands in our hands, we would be wise to heed his words this year. Consider the following options when contemplating how to use your 2018 tax refund. By taking some time to examine the big picture and research the best choice, you might just be able to turn those Jacksons into Franklins (because it’s all about the Benjamins).
There’s nothing worse than paying more for something than it is actually worth, and though we would like to pretend otherwise, that is exactly what happens every time we take out a loan. Before blowing that refund check on a fancy iPhone 87 or some creepy speaker that listens in on your breakfast conversation and tells your neighbors what you buy at the grocery store, take a glance at those outstanding loans. Identify the ones with the highest interest rate and/or the greatest amount owed and run the numbers through a loan calculator. Once you’ve determined the biggest drain on your funds, designate as much of the refund as you can to pay down the principal. This simple step can save you big in the long run.
For homeowners struggling to rein in outstanding debt, their lowest interest rate is often attached to their mortgage since credit card debt, student loans, auto and personal financing typically carry heftier percentages. Through a cash-out refinance, folks who have built up enough equity in their home can refinance other outstanding debt into their mortgage at much lower interest rates than they are currently paying. The average interest on a credit card ranges anywhere from 15 – 20% while mortgage rates currently sit somewhere in the 4’s for those with good credit. Not enough equity to utilize this option? Get there faster by paying down that principal with your refund check.
Not in desperate need of those additional funds this year? Put them to better use by giving back – because as much as we’d like to think it does, the world actually revolves around the sun, not our selves. There is always someone who can use a hand, and usually that someone is a lot closer than you think.
Instead of standing by the mailbox waiting for your check to show up, head back inside and open your computer or make a few phone calls. Research local charities to see which groups in your area are doing great things and where your heart feels compelled to help. There are lots of resources available to show you which non-profits dedicate the highest percentage of donations to the mission at hand, so make sure to dig in before settling on an organization. You might not be expanding that savings account, but you’ll feel like a million bucks after spreading the love (and the wealth). Plus, although it seems less than altruistic, charitable donations work to increase your refund come next tax season.
We are living in times of greed and instant gratification, so the last thing we are inclined to do is wait for anything – for what we want, for what we think we need, for our $5 to mature…slowly…over time…into $50. But with this “gotta have it now” mentality, maybe the best thing we can do for ourselves (and really the world at large) is to practice a little discipline.
“I’ll never earn enough in a savings account to make it worth the wait!” you might say. Well, it all depends on how much and how long you are willing to practice that discipline. The more you put in, the more it earns. The longer you wait, the more it earns. And finally, the more you research ahead of time, the more it earns. Some banks specialize in savings accounts and offer appealing interest rates that multiply your money much faster than others, so shop around before making that first deposit. You might also explore other low-risk investment options if the savings account route feels elementary and you require slightly more bang for your buck.
Unfortunately, if you were looking for the “go-ahead” to splurge on an all-inclusive vacation with your pending refund, that one didn’t quite make the cut (it was a close fourth however – everybody needs some sunshine this time of year). But before dialing up the travel agent and booking the resort, take a moment to weigh the three options outlined above. These might not be the “fun-est” ways to use your hard-earned money, but they just might be the smartest because “a penny saved is a penny earned.” That Ben Franklin really knew his stuff.
April 15th is looming, and while the early-risers and high-achievers have already cashed those refund checks, the rest of us are twiddling our thumbs ...