So, you did your taxes. Good! And you probably got a refund, which you’ve given a nickname… something like, “The IRS is going to direct deposit my new Wii Fit this week!” or “My new Blu-ray player is coming by check, actually.”
Cut that silliness out right now, buster! You’re going to want to throw that refund check straight in a savings account, because it’s one of the easiest things to save ever. Just get in the habit of always saving your refund check (the years that you get one). It really is the easiest way to beef up your savings without having to think about it.
Sure, everyone around you may be spending their refund checks, but you can buy yourself a piece of your financial future with that check. Of course, I don’t believe in saving blindly, I always think savings should have a purpose. Here are my top 5 savings ideas for your refund check:
Getting Established Fund
Someday, you’re going to graduate (hopefully). Even if you don’t, you won’t be in college forever (even Van Wilder eventually left school), and then there will be this weird transitional period where you’re looking for jobs, trying to get together cash for security deposits on apartments, maybe even trying to move your stuff across country.
Trust me, because this is where I am right now. I know you will need a little money for the few months right after you graduate. Save for it now.
Knock Out Credit Card Debt
Ok, not “savings” in the strictest sense, but if you’re carrying a balance, throw your refund check at it, and then some. And cut that credit card into little tiny pieces – for now, anyway.
Roth IRA (Individual Retirement Account)
Ok, you’re totally not thinking about retirement right now, because you’re not even (really) working yet. I get that. But you should be thinking about it, because compound interest is on your side. Check it out:
If your refund is $300, and you put it in a Roth IRA that grows at 8% per year, and you retire at 65 (say you’re 20 now), that $300 refund turns into $9,576.13 when you retire. Even factoring in 3% inflation, that’s still $2,695.50 in today’s dollars.
Extra bonus: you can still contribute to a 2008 IRA if you do it before April 15th, 2009, so you can still contribute up to $5,000 for your 2009 IRA. (I’ll talk more about IRAs in the future. If you’re not sure about them yet, just dump your refund in a savings account for now, and decide later when you’ve got more info.)
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The best savings goal is something that means a lot to you. Maybe you plan to get married in the next 5-10 years – that’s something worth savings up for. Or maybe you’re driving a junker and you know you’ll want to replace it after college. Or you want to go traveling after school. Your goals are your goals, so work toward them!
P.S. Go ahead and spend some percentage of your refund on whatever you want. I’m not a savings Nazi – have some fun! Just consider keeping that percentage small (10% sounds good to me).