Last week we gave you some tips on ways to spend your tax refund more wisely. Most of these tips involved reducing debt, improving your financial life and planning for retirement. This week we have a few more tips that will help you improve your lifestyle and relieve some stress.
Saving for Education
College tuition is expensive, even for in-state students. Some states offer scholarships for outstanding high school students, but as the number of college-bound seniors increases year after year, many states have been forced to make cuts in the amount of assistance provided. As we discussed last week, student loans are an option, but the job market has been fairly bleak for those fresh out of college and taking out a loan with uncertainty of how it’s going to be repaid is a daunting decision. A parent’s gift of college tuition to their child is one that won’t be fully appreciated for many years to come, when they’re surrounded by friends with student loan debts. Clark Howardrecommends saving for college with a 529 plan. A 529 plan will allow you to save money tax-free and spend it tax-free on a child’s college education.
Save for a Down Payment on a Home
With changes in mortgage regulations and lender’s tightening their belts, it’s more difficult than before to purchase a home with zero money down. FHA loans require a minimum down payment of 3.5% for new purchase loans. The required down payment may increase based on credit worthiness. When shopping for conventional loans, you’ll get a better interest rate with a larger down payment. If you can save up enough to put a 20% down payment on your home, you’ll have enough equity to avoid having to pay a monthly private mortgage insurance (PMI) premium. Saving for a down payment in a traditional bank savings account earning less than 1% interest won’t do much for you. If you plan on purchasing a home within the next few years, consider a money market account or CD with upwards of 5% APY.
Invest In Your Home
If you’re already a homeowner and plan on staying a while, put the money back into your home to make it more enjoyable. A $3,000 tax refund will go a long way towards refreshing a powder room or guest bathroom with a new vanity, toilet, paint and lighting. Even installing new tile can be done by the relatively inexperienced and save a boatload, consider practicing by installing a new tile backsplash in your kitchen first. If you enjoy spending a lot of time outdoors in the spring and summer, spend that cash on a new deck or patio with brick pavers. Don’t forget to add some landscaping, outdoor lighting and a new grill!
If you’re relatively secure in all the other areas mentioned, think about which expenses always leave you pulling out your credit card unexpectedly. Preventative maintenance on expensive items like HVAC systems can save you money down the road and keep you from losing air conditioning suddenly at the height of summer. Having your car inspected by a reputable mechanic can also prevent you from being stranded by a broken belt or water pump.
Rebuild Your Emergency Fund
If you’re recovering from a financial disaster, you’re not alone. Job losses and real estate losses have been rampant the past few years. If you’ve depleted your emergency fund, you know the value of having one, which may make the sacrifices you’ll go through rebuilding one easier to swallow. Don’t delay in the rebuilding process, lest you get tempted to splurge on those luxuries you’ve denied yourself. Set an initial goal and contribute to it monthly. Setting up an automatic draft the day following payday can mentally make it seem like you aren’t loosing anything at all.