Three Wise Ways To Spend Your Income Tax Refund
If you are one of the nearly 80 percent of taxpayers due to get a tax refund this year, then you are probably already thinking of ways to spend the money. While there is nothing wrong with purchasing something you really want, you should understand the power in using a lump sum of money when trying to get on the right financial track. Below are three ways you can use your income tax refund to empower yourself financially:
Establish a savings account
Savings accounts are a valuable cash reserve in time of financial emergency. Instead of reaching for a credit card, you will be in a great position to pay cash for those things you need such as a new tire, expensive prescription medicine or other budget busters.
Once you start your savings account, set-up a regular paycheck debit so a small amount, even ten dollars per check, will be automatically deposited into the savings account. Most employers permit a split direct deposit agreement, so take advantage of this arrangement to keep your savings rolling. This will make savings an out-of-sight, out-of-mind habit, and you will quietly accumulate funds that can be helpful in unexpected moments.
HINT: Set-up a savings account in another bank or credit union, don't connect it to your main checking account, and don't get a debit card for the account. This will reduce the temptation to make impulsive cash transfers and dashes to the automated teller machine (ATM); instead, you will be forced to go, in-person, and make a withdrawal if you really need the money. Remember, convenience can be handy at times, but it can also be costly.
Pay down your credit card debt
Paying a credit card balance isn't much fun, but you can benefit greatly by paying down your most expensive credit card by some amount. In the long run, that will free up more of your cash for spending on necessities and wants, alike.
Just to give you an idea of how much credit cards really can cost, if you make monthly $30 minimum payments on a credit card carrying a $1,000 balance at 18 percent APR, it will take nearly four years to pay off the balance. That means you will not only pay back the $1,000 but $380 in interest charges on top of it.
However, if you make a lump sum payment of just $500 on that same credit card and cut the balance in half, a $30 monthly payment will eliminate your debt in just a bit over a year and a half, saving you over $300 in interest charges.
HINT: Credit cards are good to have for emergencies, but they can quickly cause your finances to spiral out of control. Cut-up your highest interest credit cards, and only use your cards when you are able to pay them back immediately. Keep your cards with a trusted friend; that will help prevent impulse buys if you need to ask them for the card first.
Invest in precious metals
Buying precious metals is another good way to use some of your income tax refund money. Since 2001, the price of gold has nearly quadrupled, and though any investment is subject to some risk, there is little doubt that there is value in the long-term ownership of precious metals.
If gold is too expensive for you, consider purchasing silver. Silver has appreciated in value well over three times during the same time span, and you can purchase it by the ounce for a lot less than gold.
HINT: You can make investing into a hobby, as well. Coin collecting is a wonderful hobby for both adults and children, and investing in rare or old coins can be personally and financially rewarding. Consider spending some of your tax refund money on coins that have collectible value as well as value from a precious metals vantage point. For help getting started in coin collecting, visit a reputable local dealer or consult a published coin price guide.
Another smart way to use your tax refund is to pay off your payday advance loan.