The IRS estimates that approximately 70 percent of taxpayers receive a refund, with the average for 2006 being $2, 548. This year, why not use your refund to improve your financial situation and overall well-being?
1. Pay off your credit cards. Credit card debt can cost you hundreds of dollars a year in interest and fees. Getting rid of some of your outstanding balances can reduce your interest rates and lower your monthly payments.
2. Start an emergency fund. Financial experts recommend that families have three to six months worth of living expenses in savings in the event of an emergency. If you don't have an emergency fund, a family member’s illness, a serious accident, or a broken furnace can leave you unable to pay your bills.
3. Fund home repairs or purchase necessities. If you’ve been putting off expensive repairs to your home or car because of a lack of resources, you might want to consider using at least a portion of your tax refund to take care of them. Alternatively, you might want to set aside a portion of your refund for a major purchase, such as a home, a car, a major appliance, or a computer.
4. Invest in your retirement or your children's education. Use your tax return to prepare for the future by opening up an Individual Retirement Account (IRA) or a 529 college savings fund. Contributions to these types of accounts are tax-deductible, which could reduce the amount you owe in taxes next year, while helping you reach your goal(s) of a comfortable retirement and/or an advanced education for your children.
5. Open a Certificate of Deposit (CD), Money Market account, or other high-yield savings account. High-yield savings accounts offer similar interest rates to IRAs (typically 4-5 percent), while allowing you greater access to your money. Because they often require a higher initial deposit than a regular savings account, your tax return provides the opportunity to build wealth by opening this type of account.
