Friday, April 29, 2016

The 9 Best Ways to Use Your Tax Refund

Taxpayers get happy when they receive their tax refund. Many have big plans to use it wisely but once they receive the money they quickly forget about those plans and spend it leaving them  worse off than they were before received the refund.

A tax refund is the amount of money you over pay in taxes in each year.  A tax refund is just another way to help the government make money.  The money each taxpayer pays during the year is put into a high interest bearing account and the government keeps the interest.  The money given in a tax refund is small compared to the money earned each year from the millions of taxpayers in America.

There are only a few instances when you should overpay: if you are trying to pay down debt or want to pay off your mortgage or car loan off faster or if you know you will owe taxes.  If you work hard all year long why do you make yourself wait to get back money you earned?  Get your money upfront by adjusting your tax withholdings.  Consult a tax professional to make sure don’t end up owning money at the end of the year.

If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver. But, it is up to you to determine how to spend it.  The government does not bail out individuals and if you don’t come from a wealthy family, you are the only one you can depend on so make wise choices with your money because no one knows what the future holds.  It is easier to stay in debt, swipe that debit or credit card and stuck our head in the sand.  It takes courage to look at your situation and make a decision to do better.

I was $19,000 in credit card debt after graduating college and only making $21,000 a year. It was the hardest 4 years of my life but I learned valuable lessons that no bankruptcy lawyer, credit counselor or financial advisor could teach me.  I learned the hard way and those lessons were never forgotten.  Remember what your grandparents said and save for a rainy day. Here are 9 steps to use your tax refund wisely.

  1. Get current. If you are behind on any bills, use the money to catch up.  Make sure you get car payment, mortgage current and utility bills.
  2. Pay down debt.  Pay off judgments, liens, collection accounts and payday loans first, next pay down other outstanding debt starting with the smallest bill.
  3. Create an emergency fund.  Open a high interest savings account to cover your monthly bills and expenses for 9-12 months.
  4. Invest. If you don’t have a retirement account with your employer sign up tomorrow.  You can also start you own individual retirement if your employer does not offer one or as an additional investment.
  5. Pay extra. Pay extra towards high interest or high balance accounts such as car, mortgage or credit cards to pay the balances down faster.
  6. Donate. Make a tax deductible donation which you can write off on your taxes next year.
  7. Repairs. Fix urgent home or car repairs. 
  8. College education. If you haven't already done so start saving for your children's college education and open a 529 plan or comparable college savings plan.
  9. Purchase a home. Now is a great time to buy a home because interest rates are low.  Use the money to put towards down payment and closing costs for a modest size home that you can make affordable payments.

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