Expecting A Tax Refund? Here’s What You Can Do With It
Some of us are lucky – or foolish depending on how you look at it – in that we will be receiving a check in the mail from Uncle Sam bringing the glad tidings of a tax refund!
Forbes estimates that on average, tax payers will be receiving approximately $2,480 by way of a tax refund.
So “Splurge or Save?” That is the question!
Since this blog is all about becoming debt free, you won’t see me advising you to go spend every last penny of your tax refund if you do have debts to pay off. So let’s discuss some of the options for making good use of that tax refund.
Pay Towards Your Debt (Credit Cards, Mortgage, etc.)
Paying towards your debt, particularly credit card debt given the high interest rate on many credit cards, is a wise use of your tax refund. You will be able to reduce the amount of interest you are being charged on a monthly basis and will feel much better by knocking out a chunk of your debt.
If you don’t have any credit card debt, or the rates are very low, you might benefit from using your refund to make an extra principal payment on your mortgage. Given the reduction in savings rates in recent months, you may be able to do better by paying towards your mortgage rather than holding the funds in savings.
One last option related to your debt is that now might be the time to take advantage of decreasing rates and refinance your mortgage. The tax refund could be used to help cover the closing costs during a refinance.
Car Related Expenses
If you haven’t had your car serviced in awhile, there is no better time than now and you can use your tax refund to cover the expense. Perhaps the car needs new tires, or an oil change and tune-up that you have been putting it off.
Proper upkeep of your car will reduce the chance of a breakdown, while also increasing the fuel efficiency of your car. Car maintenance items are best handled early before it becomes a much more serious and costly problem to fix.
Maybe you have been thinking about selling your car in the near future, you can use your tax refund to get it detailed. This costs you approximately $175 and can boost the resale value of your car by as much as $1000+/-.
Set Up a Fund
If you don’t have one already, set up an emergency fund for those times when you are really in need of the extra cash. This is a great fall-back to have in place at all times!
Also, if you are planning for a major expense in a few months time, such house repairs, make a fund for that specific purpose and put away the money in a high yield savings account so that it is available when you need it, along with a small bonus!
If you want, you can apportion part of the refund for all of the nice, sensible expenses above and use the rest to go a little crazy. While you certainly want to be frugal with your money, you don’t have to deprive yourself of all pleasures.
So what will you spend it on, how will you treat yourself?
Perhaps a day’s spa treatment to rejuvenate and revitalize you! Or perhaps dinner at your favorite restaurant and a show you have been meaning to see for a while. Or perhaps you can go in for that Blackberry or X-Box or whatever gadget you have been lusting after. Or perhaps you can take a trip out of town for the whole family.
Last but certainly not least, you can use your tax refund to help those less fortunate by donating the funds to a worthwhile cause that you support. Having the ability to help someone in need can be very rewarding, and chances are you will remember that much longer than the dinner out at the fancy restaurant.
So…what have you planned to do with your refund?