How you should Save or spend your tax refund
Scenario: Single late 20’s women
Save It: Even though she has no big purchases planned for her immediate future, you never know when large purchases like a house, wedding or even a car will arise. She could save this money and be happy she put it in the bank, or she could invest it in a Roth IRA to see her money grow tax free.
Spend It: She seems to be in a healthy financial place with financial independence. She could spend this money by paying her credit card bill to avoid interest fees.
Scenario: Couple expecting their first child
Save It: They could bulk up their savings account, or they could open a 529 college plan for their new baby—it’s never too early to start saving. They could also invest the money to see returns that could eventually help pay off their mortgage.
Spend It: They could use this money to purchase new baby supplies stress-free, without going into potential credit card debt or pulling from savings.
Scenario: Couple in their 40’s with teenage children
Save It: They could pay off any credit card or remaining student loans (depending on interest rates), they could add to college funds for their kid, or deposit it into their own retirement accounts to help shore up long-term savings.
Spend It: If they have no consumer debt and have sufficient savings, they could save it for a special family trip or family experience before their kids go to college.
Scenario: Couple in their mid-60’s
Save It: They could make additional payments to their mortgage if they still have one, as a mortgage can be an emotional burden for some people as they head into retirement. If their goals are met and they want to help their own children, they could start an education fund for their (future) grandchildren.
Spend It: They could put it away for a special grandparent-grandchildren experience as the grandchildren grow (special trip, special camp, etc), or they could set it aside for the purchase of a car during retirement (when people tend to be less comfortable with car payments and are on a more limited budget).