Did you receive or are you expecting a tax refund on your 2013 taxes?
What do you plan to do with the money?
In February, a survey of Dealnews readers found more of them planned to save their refund (51 percent) than spend it (9 percent). The percentage of savers rose significantly from last year.
Part of how you will spend your refund may depend on how much you get and your current financial situation, but before you make a move, take a look at what some experts suggest and why those options may be wise choices.
Plan for emergencies. If you don't have an emergency fund already established, Thomas Nitzsche, certified financial educator for ClearPoint Financial Solutions recommends having $1,000 emergency cash as well as three to six months of living expenses saved up. You can use the tax refund to jump start your accounts. These are still challenging economic times for many people, and being prepared for the unexpected gives you a financial cushion.
Save for the long-term. You could plunk your cash into a savings account, but with interest rates low, it won't make very much money for you. Consumer expert Andrea Woroch says a better use of refund money is to invest it. It's your choice what that investment should be — an IRA or Roth IRA for retirement or a 529 Savings Plan for college are solid options. Your money will grow and you may get tax benefits.
Get out of debt. Americans carry a lot of debt between mortgages, student loans and credit cards. You can use your tax refund to decrease your debt, but think carefully where to put it. If regular mortgage payments are a struggle, use your refund toward that, says Nitzsche of ClearPoint. But many people like to use refunds to pay an additional mortgage or student loan payment, notes Woroch. A better choice, she says, would be to pay down high-interest credit cards. The move will save you more money over the long-term.
Tackle to-do's. If you've been holding off on repairs or even waiting to take a vacation, you may want to use your refund to maintain your important possessions or even your peace of mind. Woroch suggests downsizing vacations to a weekend getaway rather than a week at the beach and investing what you save.
Go shopping. So you have no major debts. Your emergency fund is set. You are satisfied with your long-term investments. Then by all means, go shopping. But even that can be done wisely. Use your refund to purchase discounted gift cards instead of heading straight to retail stores, says Woroch. Or if you file through Turbo Tax, use all or some of your refund toward an Amazon gift card to get 10 percent more. So $100 refunded as a gift card would get you $110. You can purchase gift cards in increments of $100. For details see Amazon.com.
About the Author
