Despite the complaints about high taxes, tax rates are low. According to the non-partisan Tax Policy Center, “In 2009, roughly 47% of households, or 71 million, will not owe and federal income tax.” There aren’t statistics available, but I would love to know how many people simply get their refund and spend it all on non-essential items. If you are getting a tax refund this year, rather than blowing it, consider putting it to good use. Here are ten ways you might want to consider:
- Pay down debt. If you have credit card debt, consider paying that down first because it often has a high APR. If you don’t have credit card debt, next in line would be car loan debt or student loan debt. Depending on the size of your refund, you could make quite a dent in the amount of debt you owe or even pay off a loan.
- Add to your emergency fund. Many financial advisors recommend having an 8 month emergency fund in these turbulent economic times where layoffs and unemployment spanning six to twelve months is not only heard of but typical.
- Set aside money for a house down payment. If you don’t own a home yet, consider using the tax windfall to set aside for a down payment on a house or add to your home fund that can take care of the first few months on your home loan sydney.
- Invest in a Roth IRA. People under 50 are allowed to contribute up to $5,000 a year to a Roth IRA. A tax refund could get you much closer to the yearly limit.
- Invest in stocks. The market has yet to fully rebound, so now might be a good time to invest in some stocks. While stocks can be risky, you are investing money that you chose not to blow, so you may feel comfortable taking a bit of a risk with that money.
- Pay a bill upfront. Take the money and pay a bill upfront and cover the expense for a year. For instance, if your child is enrolled in an extracurricular activity such as ballet class, pay for a year’s worth of classes (assuming your child is passionate and won’t change her mind later). You may get a 10 to 15% discount for paying the entire year in full.
- Take a family vacation. If your financial house is in order, consider taking a vacation as a family. Use your refund instead of credit cards and enjoy debt-free travels.
- Improve yourself. Use the money to take a class that will help you make more money in the future such as a financial planning course or a course that will help you earn more money in your current job.
- Make a small upgrade to your home. Some people receive several thousands of dollars in refunds. If that is your situation, consider making a small upgrade to your home that will increase its value and save you money such as buying new, energy efficient appliances or replacing old drafty windows.
- Add the money to your child’s college fund. The cost of college continues to increase, so it never hurts to put more money aside for your child’s college education.
A tax refund should not be seen as free money, but as a tool to help you improve your financial situation. If your financial situation is in order, you may want to consider investing in experiences such as taking a family vacation. Perhaps put the money aside for a few weeks or months to consider how you want to use it. Think carefully about how to spend the refund; you will enjoy it much more than if you just quickly blow through it as many Americans do.