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What to do with your tax refund

For millions of Americans, they have or will soon receive a tax refund check this year.  This year’s average refund check has been nearly $2,900 per return.  There are several prudent choices for your tax refund and even a few fun ways to spend it if you just have to spend the refund.
 
What would be the smart financial moves for the tax return?
There are three very smart moves.  The first is to pay off any credit card debt.  Another option is adding to your emergency fund or third possible alternative is to save it for retirement or college education.  The tax refund can make a huge difference to any of these three areas.
 
If someone just has to spend it, what would be a few smart choices?
If you are a homeowner, invest in your home, even a small refund can pay for painting a few rooms or updating bathroom sinks or maybe even a fence for the back yard.  Another option to invest in your house is to make an extra mortgage payment with it.  Even one extra mortgage payment per year can really reduce the term of your mortgage.  In the long run, this could save you thousands of dollars.
 
What are some of the mistakes that people make with tax refunds?
The biggest is spending it on unplanned purchases like a new big screen TV or something else that they really don’t need or hadn’t planned on doing.  If you want to spend it this way, at least use if for something that is planned, such as the summer vacation or put it in your Christmas fund for the coming year. If you want the big screen, start saving for it out of your regular monthly budget and use your tax refund for to help you improve financially.
 
Any other considerations for tax refunds?
One big one - avoid having a large refund. If your refund is $3,000 or more, think about adjusting your taxes that are withheld. You could potentially have another $250 per month in take home pay. There are better options to save that money monthly like your 401k or a 529 college savings plan to name a couple than having the IRS save it for you.


Posted: 4/14/2014 with 2 comments

Categories: Money Matters, Saving, Taxes



Comments
Kara Henderson
Great suggestions that I like to follow! When I receive a tax refund, I like to use the refund to build/re-build an emergency fund. If that is already well-funded, I like to use the money toward an IRA or 529. These investments always provide tax savings, so it creates a nice tax-savings cycle.
6/16/2014 at 3:08 PM

Kara Henderson
I like to use my tax refund to build/re-build my emergency fund. If my emergency fund is already well-funded, I like to use the funds for funding either an IRA or 529. Then I can receive future tax savings from these investments!
6/16/2014 at 3:05 PM

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