If you’ve already completed your tax return for 2009, you may find yourself among those lucky folks who will receive an income tax refund. If so, you might have even already received your tax refund if you used irs efile.
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. Know you may find yourself thinking about what to do with this refund. Should you spend it quickly? Should you save it all? There are lots of good uses for your tax refund.
First, you should 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.
Second, 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.
Third, 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.
Fourth, 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.
Fifth, 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.
If you are still working on your return, then here are a couple of posts at the blog FiveCentNickel that you may find useful:
Ten Tips for Avoiding an Income Tax Audit and Twelve Commonly Missed Income Tax Deductions
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Great advice. For the credit card one, I would even try talking to the credit card company to see if you can negotiate a pay-off for a lower amount. You never know. I’ve done it and it has worked before.
Great advice, especially the “treating” part. As long as you’re doing the other, more prudent things as well.
Rewarding yourself along the path to financial freedom is a very necessary part of the process.
An emergency fund should consist of three to six months’ worth of living expenses held in a cash account like a money-market fund. Unfortunately, with interest rates so low, people earn next to nothing on their money, says certified financial planner Scott Kahan, president of Financial Asset Management. But just knowing it’s there can be an enormous comfort when times get tough.
With no debt, and on track with long-term savings, I plan on using this money to renovate my bathroom.