If you are lucky enough to have a tax refund coming your way, ignore for a moment the visions dancing in your head of all the ways you plan to spend the funds.
Instead think about putting at least a few of those coins to work for you. No, seriously.
“It’s OK to spend a little of your refund on something fun, but consider using the bulk of the windfall to improve your current or long-term financial health,” said Sissy Osteen, Oklahoma State University Cooperative Extension resource management specialist.
The average refund in 2013 was roughly $2,800, according to the IRS. That amount could go a long way toward setting up or adding to an emergency fund that will provide you with a buffer in case of unexpected bills or loss of income.
Most financial experts recommend building a cushion large enough to cover your living expenses for at least 3 months.
“You’re in a much more stable position in an emergency if you’ve got at least a little savings to rely upon rather than having to turn to credit cards or friends,” Osteen said.
You also could apply part of your refund monies to an investing goal such as creating or adding to a retirement fund or starting a college fund for your children.
In 2014, the maximum contribution an individual can make to either a Traditional or Roth IRA is $5,500 or their taxable compensation (whichever is lower). There is a catch-up provision of $1,000 for taxpayers older than 50, who are allowed to contribute up to $6,500.
Osteen said an initial deposit of $1,000 is a good start for an IRA account.
Meanwhile, if you are considering tucking some dollars into a college fund, the Oklahoma 529 College Savings Plan may be one option. Go to https://www.ok4saving.org/ or call 1-877-654-7284.
Another smart way to use your refund is to pay off high interest debt such as your credit cards.
“Sometimes it can be hard to make a dent in your debt if you’re only able to make the minimum payment, since most of that goes to interest,” Osteen said. “Applying some of your tax refund in a lump sum can help you pay down the debt much faster.”
Finally, depending on where you decide to funnel all or some of your refund, keep in mind you can use Form 8888 when filing your tax return to spread the money over as many as three accounts (such as savings, checking and retirement).
FOR MORE tips on saving or for more information on financial management classes, contact your local county extension office.