It's that wonderful time of year. March madness, the beginning of spring and, of course, tax refunds! Most of us look forward to all three. But, unless you're a big-time gambler, the tax refund will be the one that has the biggest impact on your finances.
There's a reason for that. Last year, 110 million Americans got a tax refund with the average refund being $2,803.
Although the IRS is really just returning your money to you, it feels a little bit like "free" money. And, as free money is prone to do, it often just disappears once you get it. So if you're tired of feeling bad after your tax refund evaporates, consider one of these 10 ways to put that tax refund to work for you:
Make your home more energy efficient. You've been complaining about your heating and AC bills; now is your chance to add some insulation or install new energy efficient windows. You'll see a payback every time you open your utility bill. Also, you might even get a tax credit or rebate to cover part of the expense.
Invest in additional education. The labor market keeps changing. Old skills are becoming obsolete. New skills are required. Your tax refund could pay for night or online courses to increase your skill set and make you more valuable as an employee. The training might help you keep your job or even get you a raise.
Pay off student loans. Americans owe nearly $1 trillion in student loan debt. Approximately 44 percent are in deferment or forbearance, which means that they're not currently being repaid, but are still adding interest to the balance. If you owe student debt ,this could be your opportunity to take a chunk out of that balance.
Invest in your health. Even if you have good medical insurance, bad health can be costly-not only in medical bills, but in lost time and wages. Use your refund to join a weight-loss or smoke-ender's program. Or join a health club and begin working out regularly.
Invest in a new career or business. Many of us work in jobs that aren't going anywhere-and never will. Consider using your refund to pay for classes that will lead to an entirely new career.
Buy an IRA. The money you put in an IRA is tax deductible. But too many of us get to tax time and fail to fund an IRA because, well, we have a failure of funds! Don't wait until next tax season to try to find money for your IRA. Use this year's tax refund and you'll increase the size of next year's refund. Plus you'll have additional money available for your retirement.
Offset the pain of recent price increases. Rising food and gasoline prices have thrown many family budgets into turmoil. You can't stop eating or driving to work, but you can use your refund to buy prepaid cards that will only be used for gas or food. Unless there are more steep prices increases, you should be covered for the balance of the year.
Earn money on your credit card forever. Suppose you continually carry a balance on your credit card. Further suppose you used your average $2,803 refund to pay down the balance. At a typical credit card interest rate, that would be like getting $400 each and every year!
Invest in your pantry. There are some grocery items that you know you'll use. Use some of your refund to stock up when those items are on sale.
Build an emergency fund. Sooner or later you'll have an unexpected expense. If you don't have money set aside for these events, typically these expenses end up on your credit card and can take months to pay them off. With money set aside for unexpected expenses, you'll avoid the interest expense and be able to start saving for the next "emergency."
Take a vacation. OK, this last one isn't going to pay any dividends later. However, if you're not going to use your refund to further yourself financially, at least you'll have some memories to enjoy!
Gary Foreman is a former financial planner who founded The Dollar Stretcher.com website and newsletters. The site features thousands of articles on how to save your valuable time and money.
- Personal Taxes