Expecting a substantial income tax refund this year? If so, you’re in the majority; over 80% of Americans get money back at the end of the tax year, with the average refund being close to $3,090. Rather than having those precious dollars being absorbed into your normal spending routine, get the most out of your cash.
| 1 | Pay down high interest loans and lines of credit | With average annual interest rates for credit cards and personal loans hovering around 15%, paying off a credit card before making other investment decisions makes good sense. |
| 2 | Fund your retirement account | If you haven’t invested in a retirement account, seriously consider making a contribution to one right away. |
| 3 | Invest it | Instead of just working for money, let money work for you. If you invested one lump sum of $1,500 in the stock market, over 30 years, assuming a 12% return, you’d have $ 53,924! (Of course, do your research first before making any investment decisions and talk to licensed investment professionals) |
| 4 | Open an emergency account | Most Americans don’t have money set aside for those financial emergencies that always seem to happen when there’s no cash in the coffer. A large tax refund is a great start for an emergency account. Experts recommend it should eventually total between three to six months’ worth of essential living expenses. |
| 5 | Pay for repairs | Maintaining expensive possessions now will result in dollars saved tomorrow. Use the money to repair a leaky roof before it develops into a bigger problem; replace those dangerous bald tires with new, safe ones. |
| 6 | Start a personal endowment | Investing in your emotional, physical, intellectual, and career growth is a wise use of money. Whether it’s paying for a gym membership or a cooking class, you’ll feel effects of this type of investment fast. |
| 7 | Make an extra home mortgage payment (or two) | Though you won’t feel the benefit immediately, doubling up on a mortgage payment now can save you months of mortgage payments later. |
| 8 | Donate to a charity | Giving back to the community is a wonderful way of supporting a cause you’re passionate about. Even better – in many cases at least a portion of your donation is tax-deductible, too. |
| 9 | Open a college savings plan for your child | A four-year, out-of-state college education can cost over $100,000. Save for your child’s college education with a college saving plan. For the most part, withdrawals are completely tax-free when used for higher education purposes. Talk to a licensed investment professional about your different options. |
| 10 | Plan a vacation | If you’re in a fluid financial position, and can truly afford a bit of luxury, do something you’ve been dreaming of. Money is to be enjoyed as well as earned, saved and invested. |
Although all the preceding ideas are excellent uses for a lump-sum amount of cash, remember instead of planning for a refund, it could be more beneficial to come out even. A tax refund is an interest-free loan to the government and money that isn’t in your pocket every month. If you’ve been getting a refund back each year, consider changing your withholding exemptions so less tax is withheld from each paycheck. While a tax refund may feel like a gift from Uncle Sam, it’s not – it’s money you’ve overpaid on your income taxes. That said, some people use this as a form of saving.
Source: Balance
Consult a tax professional for the most current data and/or personal advice.