5 Ways to Spend Your Tax Refund Wisely
Saving money is in. Spending it like you don't have financial obligations is out. The recession forced many Americans to embrace this new frugality, and today a tax return is an opportunity to be financially responsible.
In fact, a recent Bankrate.com poll found that out of 50 percent of Americans that expect to get a tax return, only 7 percent will use it pay for something fun, such as a vacation. Conversely, 84 percent will use it pay off debt, save or invest, or pay for everyday necessities.
"I think it's a sign about how people feel about the economy and where we're going," says Bryan Pukoff, CPA in the Bankrate report. "There is still a lot of uncertainty out there."
Manisha Thakor, CFA, and author of "On My Own Two Feet: A Modern Girl's Guide to Personal Finance," agrees with the majority of taxpayers, and advises that people spend refunds money wisely.
"If you get a tax refund this year and you have outstanding debt, any kind of debt; I think the best use of that money is to pay it the debt down or off," said Thakor.
If you're one of the 90 percent of Americans CNNMoney.com says will receive a tax refund this year, and you're not quite sure of what to do with it, try one of these seven ways to put your windfall to good use:
1.Invest in Your Retirement: As a member of the military you have many options for saving for retirement. Consider contributing at least 5 percent of your income to your Thrift Savings Plan, a traditional 401(k), or individual retirement account. Additionally, you should check if to see if your employer provides 401 (k) matching for these kinds of accounts, which can be a boon to your retirement funds.
2.Get Schooled: Submit you tax refund towards educational funds, whether it be a 529 Savings Plan for your kids' education, or a tuition fee for you. Additionally, using a large tax return in conjunction with your new Post 9/11 GI Bill will help offset part of the cost of tuition.
3.Save It: If you don't have a savings account, now would be a great time to start one. Use your tax refund to build a small cushion, and supplement your savings on a monthly basis.
4.Get Insurance: The recent uptick in natural disasters is a reminder, that it's wise to get additional insurance for your home. For example, if you have homeowners insurance and no flood insurance, you put yourself at risk for financial ruin if your home is hit in a downpour. Use your refund towards the purchase of policy that will keep you covered.
5.Clear-up Mortgage Debt: If you only have mortgage debt, use your tax refund to make an extra payment on the outstanding amount. "With interest rates in savings accounts and CDs as low as they are right now, even with a 5 percent or 6 percent return on your mortgage, you're likely to come out ahead by paying down your debt and locking in the return," advises Thakor.
A tax refund can be a great way to pad your finances, and you should take every opportunity to spend it wisely. But, if you just can't decide how to spend the tax refund, talk to your on-base financial counselor or visit with a certified financial planner. These professionals can steer you down the right financial path.
For more personal finance tips, visit Military.com's Finance channel.