Great Ways to Spend an Income Tax Refund
a substantial income tax refund this year? If so, you are in the
majority - over 70 percent of Americans get money back at the
end of the tax year, with the average refund being close to $2,000.
Rather than having those precious dollars being absorbed into
your normal spending routine, get the most out of your cash.
- Pay down
high interest loans and lines of credit. With average annual
interest rates for credit cards and personal loans hovering
around fifteen percent, paying off that Visa card before making
other investment decisions makes good sense.
- Fund Your
Retirement Account. About 30 percent of all working Americans
have no money invested for their retirement. If you are one
of them, seriously consider making a contribution to an IRA
contribution right away.
it. Instead of just working for money, let money work for you.
If you invested one lump sum of $1,500 in the stock market,
over thirty years at 12 percent interest (the 30-year market
average) you'd have $ 53,924. (Do your research first before
making any investment decision, of course.)
- Open an
emergency account. Most Americans don't have money set aside
for those financial emergencies that always seem to happen when
there is no cash in the coffer. A large tax refund is a great
start an emergency account. It should eventually total between
three to six months worth of essential living expenses.
- Pay for
repairs. Maintaining expensive possessions now will result in
dollars saved tomorrow. Use the money to repair that leaky roof
before it develops into a bigger problem; replace those dangerous
bald tires with new, safe ones.
a personal endowment. Investing in your emotional, physical,
intellectual, and career growth is a wise use of money. Whether
it's paying for a gym membership or a cooking class, you'll
feel effects of this type of investment fast.
- Make an
extra home mortgage payment (or two). Though you won't feel
the benefit immediately, doubling up on a mortgage payment now
can save you months of mortgage payments later.
to a charity. Giving back to the community is a wonderful way
of supporting a cause that you are passionate about. Even better
- in many cases at least a portion of your donation is tax-deductible
- Open a
529 College Savings Plan. A four-year college education can
cost upwards of $100,000. Save for your child's college education
with a 529 plan. It works much like a Roth IRA, and withdrawals
are completely tax-free when used for higher education purposes.
- Plan a
vacation. If you are in a fluid financial position, and can
truly afford a bit of luxury, do something you've been dreaming
of. Money is to be enjoyed as well as earned, saved, and invested.
Go ahead. Book that cruise.
the preceding ideas are excellent uses for a lump-sum amount of
cash, remember that instead of planning for a refund, it's best
to come out even. A tax refund is an interest-free loan to the
government, and money that is not in your pocket every month.
If you have been getting a refund back each year, consider changing
your withholding exemptions so less tax is withheld from each
paycheck. While a tax refund may feel like a gift from Uncle Sam,
it's not - it's money that you have overpaid on your income taxes.