Tuesday, February 16, 2016

Six Ways to Best Use Your Income Tax Refund

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It's that time of year again when the tax refunds come in.  Some people seem to think it's Christmas and go out and buy the latest and most expensive stuff they can't afford the rest of the year, but that's not really the best use of your refund.   Here are some better ideas.

1.  Unless you are getting Earned Income Credit, make sure you don't get much of a refund.  Why let the government hold on to your hard earned money all year when you could be using it?  If you like having a "windfall" once a year, start a savings account!


2.  Pay off credit cards / bills.  If you owe anything on credit cards, pay them off.  With interest rates as high as they are, you are much better paying off credit cards.   I highly recommend the method of paying off debt that Dave Ramsey talks about in The Total Money Makeover.  Pay off your smallest debt first and then you can put that money that you pay each month towards your next biggest debt, and so forth.  (If you haven't read Dave Ramsey's book, I highly recommend a small part of your tax refund and buy it or another good financial planning book for everyday people.)

3.  Put it in a savings account for an emergency fund.   Things happen.  Last year I had to go to the emergency room on my wedding night.  I wasn't covered by my husband's insurance until the next week, so everything was out of pocket.  That cost more than our wedding.  We had car repairs that cost more than our wedding as well.  I hadn't been in debt for years until my wedding night, and we are still struggling to get out of debt.  Our emergency fund had already been depleted because of unexpected house repairs that were urgently needed.   You never know what might happen, and credit cards are an expensive way to pay.

4.  Pay a utility bill ahead.   Did you know you can do this?  How wonderful would it be to not have to pay your heating or water bill for a year?  Some places, mainly insurance companies, will give you a break on your bill if you pay it in full for the year.  So if you have enough to pay your homeowner's insurance or car insurance for the year, I suggest you speak with your agent and get a discount.  We pay a couple of our bills a year at a time for convenience and the discount.

5.  Plan ahead.  Set money back for what you will need to spend at Back to School.  I don't recommend you buy gift cards because you might buy a gift card to Wal-Mart and find Target has the cheaper school supplies.  It is expensive to get new clothes and school supplies for a child, and this is a good time to think about it.  You can set money back for Christmas at this time, as well.  Instead of buying your kids an Xbox now, why not wait until Christmas when it can be their Christmas gift?

6.  Home repairs / replace things you need.   Do you have a window that is busted out like we do?  Now is the perfect time to get that fixed.  If you are going to have to replace something like a major appliance or bed in the next year, set aside the cash and start looking for sales.

What do you plan on doing with your tax refund?

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