During tax return season we are bombarded with ads about good
ideas for spending our tax refunds. We
are encouraged to spend on cars, vacations, appliances and furniture. Because many of the companies that sponsor
these ads run them on network television, it’s a little surprising to find
wise, helpful advice on the CBS website.
Here they list seven smart ways to use the refund: Pay down credit card debt (or college loans);
Start an emergency fund (target: 6 months of income); Increase 401(k) donation; Pay down the principle on a mortgage; Deposit it in a Health Savings Account
(HSA); Start a college savings plan for children; or make a home improvement
that pays for itself. (Note: Very few home improvements actually do). Only the last one represents
spending and that is spending with an expected payback. The rest are ways to put yourself in better
financial shape and surprisingly “84 percent of Americans receiving refunds
intend to pay down debt,” as this Bankrate article indicates.
A minor problem with the Bankrate report is that they
refer to the refund as a “windfall,” which it really is not. It is your money, over-paid to the government
and held by them at zero interest.
People would have been better off using it to make a larger credit card
payment in the first place. According to
the figures given they could have saved nearly $500 (based on 17% of
the $3,034 average refund). Nevertheless,
it’s not too late to save that money this year by using the refund and possibly adjusting the W-4 to free up money today to continue to pay down the debt instead of letting the government hold it for a year.
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