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.

8 Ways to Use your Tax Refund

 

If you haven’t filed yet, what are waiting for? It’s that time again - time to get your tax refund. We all could use some extra money. Unfortunately, for many Americans in this economy getting a tax refund means it will be spent as soon as it is received. If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver.

Taxpayers have been conditioned to believe that it is great to get a tax refund when we file taxes. The best way to get your tax refund is to increase your tax withholdings and get your money back during the year. Pay yourself instead of paying the IRS. Getting a tax refund gives the government free money, which is put into a high interest account. The government keeps the interest and gives the money back to you during tax season.

If you are not very disciplined and don’t manage your money wisely avoid getting a tax refund and adjust your tax withholdings during the year. In some cases, getting a tax refund can cause taxpayers to be worse off than they were before they got the refund because they spend the money frivolously and go deeper into debt. Do not make that mistake. Use your tax refund wisely and improve your financial situation. Here are eight ways to apply your tax refund.

1. Create an emergency fund. Create a savings account to cover bills for 9-12 months.
2. Pay down debt. Pay collection accounts, judgments, liens, and any other late accounts, then pay down credit card balances to 20% or less of the credit limit, then pay any other debts.
3. Invest. Start a retirement account. If you don’t have a retirement account with your employer sign up immediately. You can also start you own individual retirement account (IRA) in addition to your employer account.
4. Give. Make a tax deductible donation which you can write off on your taxes next year.
5. Save. Save for your children's college education. If you haven't already done so start saving for your children's college education. College tuition increases at 3 times the rate of inflation. 
6. Wealth. Purchase a home. Now is a great time to buy a home. Use your tax refund to put towards down payment and closing costs.
7. Increase job skills. Take a class or go back to school to enhance your skills at work. This can increase your chances of staying employed or help you find a job.
8. Repairs. If your home needs major repairs use your tax refund to fix them.

How to Invest Your Tax Refund Wisely

It’s tax time. You will either receive a refund or owe taxes. Many taxpayers get excited when they receive their tax refund. Many have grand plans to use it wisely but once they receive the money quickly forget about those plans and spend it leaving them sometimes worse off than they were before received the tax 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 4 steps to use your tax refund wisely.

Invest $500

• Buy a mutual index fund
• Open a discount brokerage account and buy individual shares
• Open an IRA or  index fund with a low expense ratio under 1%
• Open a CD, higher interest rates can be found with online banks or longer CD terms (1-5 years)
• Open an online high interest money market account that has no fees or minimum balances
• Open an online interest checking accounts that earns 3% or more
• Open a DRIP (dividend reinvestment program) to buy stock directly from companies and automatically reinvest the dividends earned from the stock
• Join an investing club, they usually charge a membership or annual fee to join.
• Pay down debt
• Start a savings account to cover monthly bills and expenses from 9-12 months

Invest $1,000

• Follow save advice for investing $500
• Invest in an exchange traded fund or buy individual shares
• Purchase shares directly from a company through direct stock purchase plans (DSPPs
• Open a mutual fund
• Purchase government bonds or Treasury Bonds
• Buy 100 shares of a stock priced at less than $10 or buy 50 shares of a stock priced at less than $20, etc.
• Buy balanced index fund with at least 5% annual return

Invest $5,000

• Open a 529 college savings plan
• Open a low-to-medium-risk mutual fund
• Invest maximum in a Roth IRA ($5,000 per year)
• Buy municipal bonds with at least BBB rating

Invest $10,000

• Follow same advice for investing $5,000
• Buy a franchise
• Invest in a profitable business
• Start a business
• Buy real estate