Getting a tax refund every year is like “Christmas all over again” to many Americans. Starting in January, I start hearing wish lists from family members and friends. Someone is planning on buying a new motorcycle with their expected windfall, while someone else wants to plan an exotic vacation. While using a portion of your tax refund to “splurge” on something you really want or need is a fine idea, blowing the whole wad on unnecessary things is a real waste.
Not everyone dreams of tooling down the highway on a new Harley or vacationing in the Far East by using the money they get back from Uncle Sam. According to a recent survey, almost half of the smartest Americans will use their income tax refunds to pay off credit cards or lessen other areas of debt they have. Not only will they reduce their debts, but they’ll also save money on interest they would have paid. They aren’t just “spending” their refunds, they’re using it to improve their financial situations.
A thrifty friend of mine used part of her tax refund from last year in much the same way. She divided it up so she could pay an extra eighty bucks a month on her car payments this year. (She spent the rest of the money.) The results? She was able to pay her car off six months early and get out from under the financial weight of having a car payment.
If you have a house mortgage, you can pay a chunk of your refund on the loan. This financial maneuver can lead to a significant savings in the amount of interest you pay on your loan.
The average income tax refund, which equals about $2,500., can be make a nice “Reserve Fund” in case of emergency. Another survey estimates that more than half of Americans who have kids under the age of eighteen live “paycheck to paycheck.” That means, if their car needs repaired or the washing machine decides to make its last spin, many people will be forced to use their credit cards or borrow the money from another source. Having that couple of thousand dollars in a savings account, instead of spending it, could be a real lifesaver for their all-ready-tight budgets.
Think about the other possibilities you could wisely use your refund for. Do you want to buy a house and you need a down payment? Maybe you haven’t started a college fund for your kids yet.
Speaking of college, maybe you’ve been wanting to take some college courses to improve yourself and your job skills. Why not invest your income tax return in yourself?
If you’re already a homeowner, one of the best investments you can make is to spend money on home improvements. Energy-saving improvements save you money on heating and cooling bills right away. Any type of improvement you make on your home will raise the value of your house so you’ll be able to ask a higher price if you sell it. Plus, with more value in your home, you’ll be able to borrow more on a second mortgage or equity loan. People typically borrow towards their house because the interest rates are cheaper than other types of loans.
Many people don’t have retirement funds. Are you one of them? You can use your tax refund to start a retirement fund or add to an existing program that’s sponsored by your employer.
Next year, you can keep more of your tax money in your pocket, instead of loaning your money to the government for a year without earning any interest. Check your tax withholding status and find out if you’re having too much taken out of your paychecks.