Not Made Of Money

If you’ve already completed your tax return for 2007, you may find yourself among those lucky folks who will receive an income tax refund. Tax returns can vary from small amounts to fairly hefty sums. In fact, some people receive returns that are as much as several thousand dollars.

If you’re fortunate to be getting a tax refund this year, you’ve probably already experienced a couple of emotions. First, there was the joy that came with finding out that, not only do you not have a tax bill this spring, but also that you are getting money back. What a relief that revelation was!

Now that the initial joy has passed, however, you may find yourself fretting about what to do with this windfall. Should you spend it quickly? Should you save it all? There are lots of good uses for your tax refund.

1. Jump-start your mission to pay off all of your debt. Sometimes, the size of your debt can be so intimidating that you’re too discouraged to start working on your debt. But if you use your windfall to pay off a large chunk of your debt, you can get yourself motivated to continue with your plan to reduce your debt.

2. Start planning for your retirement. Using all or part of your income tax refund to open a retirement account, either an IRA or Roth IRA, can have a double benefit. Aside from planning for your financial security after you stop working, a contribution to an IRA can have a large tax benefit on your next income tax return.

3. Open a college savings account for your children. The cost of a college education continues to grow each year making a college degree seem out of reach to many people. Opening a savings account early can help you and your children begin planning for their post-high school days. Be sure to check out the tax-sheltered 529 savings plans to see if they will benefit you.

4. Make an improvement to your house. Since your home is the asset that you probably use most, you can never go wrong by investing in it. Whether your home needs a new roof, your carpet needs replacing, or you’d just like to spruce up the outside of your house, a completed home improvement project will always bring a smile to your face when you come.

5. Treat your family to something you can’t normally afford. Not every use for your income tax return has to be centered around a monetary theme. Although you may be trying to avoid increasing your debt, using your tax return to fund something frivolous like a vacation, may be just the thing you need to help you stay committed to your strict budget. For a few days your family can enjoy themselves without worrying about expenses and enjoy being together.

The best uses for income tax returns are usually large ticket items that you might not be able to pay for on your regular salary. You can pay off debts, create new assets, or do something nice for your family. Most importantly, though, just make sure that when your income tax check is gone you have something to show for it.

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