Four Ways You Can Use Your Tax Return To Change Your Life!
It is estimated that 85% of Americans receive a tax refund, and the average tax refund is $2,800 (learnvest.com, 2013). Lots of people use their tax refund as a method of saving money – if they did not have it automatically deducted from their paychecks, they would never be able to save the money. If you are one of these people, consider using that ‘extra’ money in a different way this year. Your future will thank you!
- Put some of your tax return money into an emergency fund. When you have a large amount of money available, it is a good time to start an emergency fund. Having some money set aside in an emergency fund could be the difference between happiness and disaster. Do you carry a balance on credit cards, student loans, retirement loans, or other loans? Why not take some money from your tax return and get rid of that debt? Credit card and other debt costs you far more than the cost of the original purchase, because you pay compound interest. Compound interest is interest that is paid both on the original purchase AND on the interest of the unpaid debt – so you actually pay interest on interest! Paying off your high interest debt pays you back immediately, since you will pay less to your creditors.
- Spend your money on things you really need. Do you need work done on your home? Have you put off having some dental work done? How is your car running, or do you need a car? Spending your tax return on these types of expenses pays you back because you will not wind up paying more as the problem becomes bigger or worse. Remember to first spend the money on something you NEED, not something you WANT. Do not go into debt to afford life’s necessities. Use your tax refund!
- How is your retirement going to look? Do you have anything put aside for your ‘golden’ years? Contributing to an IRA can actually increase the amount of your tax return, so you wind up getting even more money to stash for later in life. Is there a charity that you want to contribute to, but never had the extra cash to do it? The windfall of a tax return is the perfect opportunity to do something good for someone else.
- What about going back to school? Even if you qualify for tuition assistance through government funded agencies or perhaps through your employer, there will always be a need for extra cash when attending an institute of higher learning. Using your tax return to invest in YOURSELF is a step toward a better future for you and your family.
- Finally, if you have come this far and the other items on this list are already taken care of, take 10% of your tax return and buy yourself something nice. It is, after all, your money. You worked for it, and gave it to our government interest free for a whole year. Do not feel guilty about using the money for something nice. Just don’t get carried away by the excitement – a $500 refund is no excuse for a $3,000 vacation!