What should you do with your Tax Refund?
By: Jeff Morgan
Are you expecting a tax refund from the IRS this year? Many of us will get some kind of refund, and even if you don’t, the Economic Relief Act of 2008 will be providing many American households with an unexpected windfall. What are you planning to do with your refund check this year?
It’s easy to get excited about getting a tax refund check—after all, it’s like getting "free money"—and easy to blow it on a shopping spree or a down payment on a large purchase such as a new car. Think on this, however: there are plenty of ways to spend the money, but not all of them are productive.
Ideas for Using your Tax Refund
It might be more fun to go shopping, but take a look at this list of ways in which you could use the money to improve your financial situation permanently. Could you improve your finances now, or save for the future with your tax refund?
Pay off or reduce credit card debt, student loan, personal debt, or an auto loan.
Put the money in your children’s college fund, or find a 592 plan to start saving for college expenses.
Add it to your cash reserve—many financial experts recommend saving between six and twelve months worth of living expenses, which can be used in an emergency.
Add the money to your fund for a home down-payment if you’re renting.
Save for a down payment on an investment property, add the money to your IRA, or use the money to start an IRA.
Use the money to improve your financial knowledge. Take a class or spend a few sessions with a financial expert to learn how to better manage your own finances and improve your financial stability.
Start up a home business. Many home businesses require a surprisingly small amount of cash to start up. If you have the time to invest, a successful home business could end up increasing your income significantly.
Whatever you decide to spend your refund check on, be wary of taking out a refund anticipation loan or dealing with a company which offers rapid tax refunds. These services almost always take a fairly big chunk out of your refund in interest or fees and they’re not much faster than just waiting for the refund check. Remember, this is "free money," so it’s unlikely you really need to receive it just that little bit earlier.
About the Author:
Business owner for over 18 years.
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