Should you save or spend your income tax refund? Here, “the Money Couple” offers six tax refund tips to help you achieve your financial goals.
You can use your refund in all of these ways, or combine these tips to create a unique way of spending your income tax money.
“More than half of all Americans will get a tax refund this year,” say “The Money Couple”, Scott and Bethany Palmer, authors of First Comes Love, Then Comes Money: A Couple’s Guide to Financial Communication. “Since the average refund is around $2800, that money can make a significant difference to your financial security.”
This money decision, like every other money decision, calls for solid financial planning and communication. You don’t necessarily need to save or invest your tax refund – read Money Can Buy Happiness: How to Spend to Get the Life You Want for tips on money and happiness. And, here are six smart ways to use your income tax refund from the Palmers, who have written two books about financial communication for couples.
6 Smart Ways to Use Your Income Tax Refund
1. Don’t spend your income tax refund until you actually have the money. It’s tempting to spend your income tax refund as soon as you know it’s coming, but, there are no guarantees in life! In the weeks between the time you file your income taxes and the time you get your tax refund check, you might have a job change, the TV might die, your child might get accepted to a more expensive college, a friend might fall on hard times and need financial assistance. Be patient and wait until you have your tax refund in hand before you actually spend it.
2. Pay off your credit card, student loan, or other financial debts. Remember that debt – credit card debt, mortgage loans, student loans – costs you money in interest. If you’re making monthly payments, make getting rid of debt your top priority. Money you don’t have to pay a credit card company is money you can use in other ways.
3. Re-distribute your stock, mutual fund, or retirement savings investments. If you’re getting a tax refund, now’s the time to look over your retirement savings, college funds, and other long-range investments. A smart way to use your income tax refund (depending on how big it is) is to add several months’ worth of funds to your investments. You’ll reap financial rewards and achieve financial abundance before you know it!
4. Fund an emergency account. The Money Couple says, “We meet with a lot of couples who have all their money tied up in investments. While those are great, it’s smart to have a decent stash of money – maybe two or three months worth of living expenses – in a liquid account in case you need it for the proverbial rainy day.”
If you want your income tax refund to be the basis of a financial account, you might find 9 Tips for Building an Emergency Savings Account helpful.
5. Invest your income tax refund in your relationships – but be smart about it! If your overall financial picture looks good, then talk about how your family can make the most of your income tax refund. Take a fun vacation that increases your bond as a couple or family – perhaps a cheap vacation package to Maui! Make memories, or purchase something the whole family can enjoy together.
6. Donate your tax refund to a worthy cause. Many non-profit organizations are struggling in the recession; a $1000 donation can go a long way toward helping others. Give to your faith community, your child’s school, or a charitable organization that you already support. Investing your income tax refund not only helps others financially, it’ll make you feel fantastic about how you’re choosing to spend your money. Plus, a charitable donation can help you with next year’s income taxes!
Income tax time can be a headache, but when the numbers add up in your favor – and you get a tax refund – it can be a nice breather for your financial budget.
If finances aren’t your strength, read Why Are Women Bad With Money? 7 Money Mistakes Women Make.
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For more info about the Palmers, visit The Money Couple.