The average American receives an annual tax refund of about $3,000. If you received one this year, consider using your refund to improve your financial situation. Here are six great suggestions:
1. Pay off debt. Focus on paying off credit cards and other high interest debt. Use our credit card pay off calculator to see what it will take to pay off your balance.
2. Add to your retirement savings. Add to your current retirement savings plan or open an IRA (Roth or traditional). Unsure which one? Use this tool to determine which IRA may be right for you.
3. Buy more protection. Umbrella insurance, which provides liability coverage above the limits in your auto and homeowners insurance policies, is often overlooked as an important part of your financial security. Long-term care insurance also helps protect your assets and may be worth a look. It has been called “the greatest uninsured financial risk today.” This is because the majority of costs for extended care services needed during recuperation from strokes, accidents, and illnesses are not covered by your health insurance or Medicare.
4. Save, save, save. Start an Edvest or other 529 college savings plan for your kids or grandkids. Build up an emergency fund. Start a money market account with a higher interest rate to save for a vacation, a new car, or home remodel. Whatever your goal, you’ll feel better knowing you have a head start on your savings. Our savings calculator can help you find out what it will take to reach your goal.
5. Share the wealth. Consider giving some or all of your refund to your favorite charity. Often monetary donations to charitable organizations are tax deductible, and you’ll feel good knowing your money will go toward helping others in need.
6. Consider a planner. If you are in need of a comprehensive financial plan, assistance with investments, or estate planning, you may want to use your refund to purchase the services of a financial planner. For help deciding what services you might need and how to find the right planner for you, read the “Do you need a $ planner?” article in the spring 2013 issue of your$TM magazine.
If you received a sizeable tax refund this year, you may want to consider adjusting your income tax withholding. Doing this will reduce your annual refund, but you will be taking home more money each paycheck instead of letting Uncle Sam hold on to it (interest free)!
Brenda Echeverria, Financial Planner