13 Ways To Spend Your Tax Refund
Everywhere you look, someone has advice on how you should spend your tax refund. “Google” it, and you’ll find “3 Green Ways”, “7 Smart Ways”, and “10 Tax Friendly Ways”. You’ll also comes across “productive”, “fun” and “frivolous” ways. You get the idea.
This year you may have more money to spend. The White House recently announced that average tax refunds are up almost 10%. The IRS says the average refund is $3036. If you’re getting some money back from Uncle Sam, how should you spend it? It may not be your lucky number, but let me add 13 ways to spend your tax refund. Actually, it’s not my advice. I called a couple of financial advisors to get their suggestions, and both believe the current economic climate should be top of mind when spending the money.
Steve Ellis with Season’s Financial Group believes the money can be best used to pay off debt, like credit cards. Pinnacle Investment Advisor’s Julie Skye says spend some of the money on educating yourself to keep your current job, or if you should lose it, to find another one. Both of them agree that a portion should go to funding your retirement. And Skye says don’t forget to use some of your refund on a vacation or around the house to give you a fresh take on life. Here are their lists on “How To Spend Your Tax Refund”:
From Julie Skye, Portfolio Manager, Pinnacle Investment Advisors:
- Spend part of your money on some sort of education that lets you “cross train” at your current job, or be prepared for a new job, if you lose your current job. And you might be fortunate enough for your current employer to pay part of that, and give time off during the work day. When the going gets tough, invest in yourself.
- Spend part of your money on a family vacation or household project that would give you a fresh take on life. Whether it is a down payment on a home theater or pool, or a time you and your kids won’t forget, spend a little investing in your relationship with your family.
- Spend part of your money on upgrading your computer system…and look for free/cheap classes to take so you can use your new equipment. With the need for high band width and social networking, you need the capacity for lots of content. And, if you manage your finances, investments and taxes on your computer, you might get to write off the equipment. Consider making your house a wifi zone!
- Spend part of the money on 2010 taxes…if rates go up, you might find your current withholding is not enough.
- Spend part of your money on a Roth IRA…get ready for a tax free pot of money down the road…when tax rates are higher.
From Steve Ellis, Chief Investment Officer, Seasons Financial Group:
- Pay down debt. Start with credit cards first (if you carry a balance). If you don’t have credit card debt, look at paying down other consumer debt like car loans.
- Build (or rebuild) your emergency fund. Having 3 to 6 months living expenses saved is a great start.
- Contribute to your retirement savings. 401k, 403b, IRA, Roth, etc…especially if your employer matches your contribution.
- Give to charity. You’ll be giving back to the community and you’ll receive a tax break to boot. (Besides, they really could use your help right now.)
- Invest in your children’s future by funding their education plans.
- Refinance a high interest mortgage. You could save you thousands of dollars over the life of the loan.
- Save for a future specific goal…like a new car, home improvement project, family trip, etc.
- If you are receiving a large tax refund (>$1000) consider adjusting your withholdings (W-4). Example: a $3000 tax refund = $250 month than could be going into savings, retirement plan, etc….instead of waiting until the next year for the government to give you your money back with NO interest!
You’ve paid your debt to Uncle Sam, so if you get some money back as a tax refund, be sure to make the most of it.