Ask An Expert 2012 - Taxes: FAQ #5

FAQ #5 - I got a refund. Any tips for what to do with it?

Here’s 3 ideas for what you can do with it!

SAVE IT!

Obviously this is a great option. Here’s some reasons why it’s important to save money:

* To Create an Emergency Fund
Even college students should have an emergency fund for unexpected expenses. Don’t let one event make your financial life spiral out of control, like an emergency car repair. Experts suggest having at least 3 to 6 months living expenses in your emergency fund.

* To Save For Your Financial Goals
What do you want to get out of life - graduate debt free, put a down payment on a house when you graduate, go on a study abroad trip, etc? So you could spend your refund on a new tv or clothes, but isn’t it better to think about what that money could instead help you achieve in the future?

Good Savings Tools:

* Savings Accounts
Very safe investments that earn low interest.

* U.S. Savings, Government, & Corporate Bonds
When you buy a bond, you are entering into a formal agreement where the borrower can use your money for a set period of time and you will get paid a specific amount of interest. Corporate bonds typically pay the highest interest rates but are riskier.

* Certificates of Deposit (CDs)
Banks and credit unions have their own versions of savings bonds, called certificates of deposit. You loan them money for a set period of time and get interest in return.

* Money Market Deposit Accounts
Offered by banks and credit unions, these work like checking accounts, but pay a higher rate of interest than savings accounts and require a higher minimum balance.

PAY OFF DEBT!

Have a credit card with a high interest rate? Have unsubsidized student loans you’re earning interest on? Use your refund to reduce the amount of debt you’ll have when you graduate!

INVEST IT!

Do you always hear about investing, but aren’t sure how to start?

Good Investing Tools:

* Mutual Funds
Professionally managed collection of money from a group of investors. Include various types of investments, including bonds, CDs, and stocks. A mutual fund manager decides what to buy or sell.

* 401Ks
Employer plans are retirement plans provided through your employer. Typically money is invested in mutual funds.

And REMEMBER....

You do need to enjoy life! If you do want to spend some of your refund on something that will make you happy, do it!