As parents, we have the honor of claiming our children as dependents on our tax returns. Growing up, I know my parents always made a big deal out of this but I never knew the numbers. Claiming our 2 ½ year old for the first time was pretty nice but this year when we did our taxes? Our jaws dropped! Adding two more children to our return did wonders for us.
So what do you do with all that money? Here are five common things that people do and my suggestions on how to make the most of your choices:
Depending on your debt situation, paying just $1,000 towards some of your higher interest debt can save you a lot of money in the long run. Don’t have any credit cards? Put that money towards your student loans. It would be nice to have your own loans paid off before the kids enter college themselves, right?
Open a retirement account.
A lot of banks will open a retirement account for as little as $500. You’ll want to talk to your financial adviser before making any decisions but not including any compounding interest, if you contribute $2000 starting at age 25 for 20 years (assuming the length you can claim your children on your taxes), that’s an extra $40,000 you have put away (Score!), hopefully in addition to other 401(k), IRA or ROTH-IRA plans you may have. Depending on the type of account you open, your contribution may be tax deductible for next year’s return. Double score!
I’m not talking about your husband losing his job kind of emergency. I’m talking about an actual natural state of disaster. Last Spring, here in the Midwest, we found ourselves faced with a substantially larger amount of tornadoes than normal. And one hit way too close to home for comfort in April. Shortly after, we went to our local Home Depot and stocked up on emergency flashlights, flares, Rubbermaid containers, solar blankets, etc. We used resources found on the internet to pack our containers full of extra sets of clothes, bottled water, even diapers.
You may not be in Tornado Alley but I’m fairly certain every area is susceptible to something: hurricanes, blizzards, mudslides, earthquakes? You don’t want to find yourself unprepared.
You thought I’d forget your favorite spending topic, didn’t you? Yes, I do still believe in treating yourself. With that said though, don’t go overboard. This is not the time to buy things that you couldn’t afford otherwise. The last time I treated myself (with tax refund money), my husband and I both got massages, he got new shoes for work, I got new dress pants for work, and we bought a few things for our 2 year old. You can take this topic to mean what you wish but try to make this section the part you put the least amount of money towards!
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