NORTH COUNTY – Income tax season is a happy time for people who anticipate a considerable refund on their taxes. They look forward to having extra money; some individuals even plan to finance big-ticket purchases entirely with their tax refunds.
However, rather than investing in things that decline in value – like vehicles, electronics, etc., using smart money management can turn a refund check into a nice nest egg or stretch dollars to make the most of this windfall of cash.
The following money-management tips can help anyone develop strong saving and spending habits that can pay dividends for years to come.
When looking to make the most of a tax refund, start by organizing financial documents and getting a grasp on spending and saving behaviors. Examine income-to-expenditures ratio to see where the majority of the money is going. It can be difficult to make significant changes with regard to finances if people don’t have ready access to their financial records and a strong appreciation of how their money is truly being spent.
Pay off high-interest loans
When addressing one’s finances, take inventory of any high-interest loans, including credit card bills. It will save a person more money in the long run to pay off this type of debt as soon as possible. The earlier such debts are eradicated, the less ultimately paid in interest. What’s more, paying off debt helps establish a better credit record and score, which can make a person eligible for lower interest rates in the future. Using a refund to eliminate debt is more beneficial than simply letting the refund sit in the bank, where it’s likely to accrue less interest each month than the interest that accrues on credit accounts with outstanding balances.
Investigate savings programs
It is estimated that customers who don’t have an account at a bank or credit union spend, on average, more than $800 at check-cashing businesses each year. Opening up an account with a credit union or bank will immediately save a person money on check-cashing fees.
Speaking with a banking representative can also provide information about various programs that will enable one to save their tax refund and earn money on it through interest accumulation.
In the National Retail Federation’s annual Tax Returns Study, 40.2 percent of respondents said they planned to stash some of their refund in savings in 2013. While traditional savings or checking accounts may offer nominal interest rates, longer-term certificate of deposits or money market accounts may yield more interest.
Talk to an investment specialist
An income tax refund may offer the perfect opportunity to start investing. A 2012 study by TD Ameritrade indicated 63 percent of respondents said they plan to save or invest at least part of the money they get back on their taxes. A financial planner or stock broker can guide one through potential investments that carry the right portfolio and level of risk for their needs.
For those who prefer to do the work themselves, many investment companies have user-friendly websites where account holders can manage their own investments and monitor the daily performance of those investments. With the right investment, it’s possible to turn a refund into a substantial amount of money over the course of several years.
Stretching tax refund dollars means making smart choices regarding money management. Rather than splurging tax returns on big-ticket items, why not use a refund to grow savings, begin an investment portfolio, or pay down debt?