Tuesday, January 31, 2012, PM | Leave Comment
I hope you get a tax refund this season. You would be among the more than 70% of tax filers who typically receive a refund. Last year, the average refund was over $2700, 12% higher than the year before, according to data from the Internal Revenue Service. Now, the question is what would you do with it? There are many ways you can deal with it.
In the previous years, you would happily spend it by giving it to the owners – who are already rich – of some casino buildings in Las Vegas and Atlantic City. Some would spend it on dining and whining while others on some exotic vacations. But, hopefully, not this year. It’s different time. You just can’t spend and spend extra money that you a hold on. The reason you got this refund is that you were paying to the Government more than you had to.
You would be a schmuck if you spent the refund the same way like you did in the previous years. You are single or married, have kids or not, you would be wise to spend it wisely. Oh! You would spend it but you should spend it on things that can give you some return in the future.
Basically, there are many ways to deal with the tax refund. In any case, don’t let it be a burden on you. Think about it.
I don’t think you would spend it outright. In the good old days, you could do that. America, after all, was built on spending. Spend a couple of hundred dollars on partying and such, but I would not spend more than that. Think about tomorrow that, well, in the minds of some people never comes. You have experienced and going through the worst recession since the Great one. Why would you go back to the old habits. Learn and act smart.
Pay off credit card debt
Why should you let the credit card companies make all that money with interest and late fee and finance charges and… Across the board, financial planners said that using refund cash to pay down high-interest credit card debt was a win-win situation. Make a strong intention – is that correct English? – that you would not put extra money in the pockets of these predators/creditors. Turn the tides on your credit card balance. Pay it in full or at least a big chunk of it.
Build up Emergency Fund
Many people think emergency savings is for future. It is for today if you saved yesterday. That’s what emergency is. It can happen at any time. As the saying goes: “You hope for the best, but you are always prepared for the worst.” Be prepared. Emergency can strike any time.
Invest for the long term
Some of it, no matter how little it is, should be invested for the long term. If you have at least 5-10 years before you will need the cash, then investing for the future – particularly for your retirement – is a smart move today.
For those without debt and job insecurity, lowering monthly housing payments might be the way to go. Lending rates are at record lows, and by locking in a lower rate, you save money every month. You don’t have to be a Math or Finance professor to understand that.
In a Nutshell
The tax refund is your money. It is entirely up to you what to do with it. People can just remind you once in a while, you have an obligation to yourself and your family and to this great nation of ours. Spend but spend wisely. The average refund is a lot of money. Don’t throw it in the trash.