Posted by: Dennis Hinkamp on Mar 16, 2009
What's the Best Use of Your Tax Return?
ASK A SPECIALIST: HOW CAN I MAKE THE MOST OF MY TAX RETURN IN THIS UNCERTAIN ECONOMY?
Answer by: Melanie D. Jewkes, Utah State University family and consumer sciences agent, Duchesne County
Currently, many are worried about the effects of the economy around us. Politicians are trying to persuade you to spendyour tax return in order to stimulate the economy. But before rushing to spend at the car dealership, furniture store or shopping center, take a moment to reflect on your personal financial situation. Consider the following ideas for making the most of your tax return.
• Use your tax return to catch up on bills. If you have outstanding or past-due bills that are accruing interest and late fees, put your return toward these first. Prioritize collateral-type debts, such as mortgage and car loans, over non-collateral type debts, such as credit cards and medical bills.
• Assess your overall debt and credit situation. To whom do you owe money? If you have multiple accounts to choose from, put the extra money toward the one with the highest interest rate to save the most in the end. Visit www.powerpay.org and experiment with the online calculators programmed to show you how to get out of debt.
• Save for a rainy day. Work toward saving $1,000, then build up to having at least three to six months’ worth of expenses. This can help keep you out of debt when an emergency comes. And it is easy to do, since the IRS can deposit your refund directly into an account instead of issuing you a check. Act as if the return never came into your hands by placing it in a savings account that will not be touched until there is an emergency.
• Use the refund to build a revolving savings fund for non-monthly expenses that occur throughout the year. Examples include Christmas, car registration, school registration or tuition, back-to-school clothes, birthdays, hunting season or summer vacations. Add all costs and divide the total by 12 months. This amount should be placed monthly into a revolving fund to pay for these expenses. Use a portion of the tax return to get this fund going, and imagine how prepared you will feel when you need the money and it is available.
• Look at retirement funds and pension plans. Meet with a financial planner, if necessary, or use an online calculator to estimate future funds needed for retirement. Don’t let the current stock market fool you — now may be the best time to purchase shares of stock because they are cheaper — it’s like buying stock on sale. And chances are that the stock market will go up again, as it always has. Place your tax return in a Roth IRA or open a new investment fund. Watch as your money grows, adding a nice cushion to your retirement savings.
• As a family, make or review family financial goals. These could include immediate needs, managing expenses on a lower income or working toward paying bills on time. Beyond the immediate, goals might include a family vacation, providing college education funds or buying or paying off a home. What goal could use a boost from the tax return? Making it a family effort teaches family members valuable lessons about money, goals, dedication and achievement, no matter the current economic situation of your family.
After determining your financial situation, make decisions that will most benefit and “stimulate” your personal and family economy, financial goals and security.
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Comments
Amy Hartman said...