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Mar 7, 2014

7 Ways to Make the Best Use of Your Tax Refund

Whether you’ve already filed your income tax or are about to, you may be looking forward to a nice big refund check from Uncle Sam. In fact, the average tax refund last year was about $2,700 which is more than a month’s worth of income for 2 out of 3 taxpayers. Before you start thinking about ways to spend it, you may want to consider using that refund to enhance your financial life going forward. Here are some options in a general order of priority:

  1. Put in savings for emergencies.
  2. Get caught up on old bills.
  3. Pay down high-interest debt.
  4. Contribute to a Roth IRA.
  5. Purchase U.S. Savings Bonds.
  6. Contribute to an education savings account.
  7. Go on vacation.

vacation

Source: epSos.de, Flickr.

Spending your tax return on pleasure expenses can be so tempting when receiving a large lump sum of money. However, the more practical route would be to take care of your financial obligations with leaving pleasure expenses at the bottom of the list.

For many Americans, the tax system can be their only way of saving for these various goals. The problem is that it isn’t exactly the most efficient way of saving since you earn no interest on your money and don’t have access to it until after you file your taxes. If you’re receiving a larger refund every year, you may want to adjust your W-4 tax withholding and save for these goals throughout the year instead. But don’t go too far the other way or you might need to read this article next year instead.

Check out our blog The ways to spend your tax refund. Make sure to avoid these spending habits. Enjoy your money, don’t waste it.

Originally posted and shared from: http://onforb.es/1fHchAZ, Erik Carter, December 20, 2013.

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