April 24, 2019
With April 15th very definitely behind us, most US citizens who didn’t file for an extension, have filed their taxes successfully, either alone or with the help of a tax professional. Many folks will be disappointed to discover that they owe taxes, while others will be pleasantly surprised with a refund.
Tax refunds can naturally vary in size, but some may be a significantly large sum of money; research shows that the average refund last year was at just over $3,000, and this is no trifling amount. So, if you’ve had a refund or are expecting one, how will you use it?
Where do tax refund recipients spend their money?
With more than half of all tax paying Americans who received a refund, planning to save all or most of it, will you be among them, or will you spend it? Among those who decided to spend their refund, it’s estimated that around 40% will spend it on paying off debts, with another 15% using it for home repairs, and 8.8% expecting to spend it on car repairs.
Where should tax refund recipients spend their refund?
How you use your tax refund should ultimately depend upon your own financial circumstances. If you have high-interest debt, then your priority should be to pay that off as quickly as you can. This will give you the best return on investment and if your debt was accumulated on credit cards, then you’ll have the bonus of additional borrowing power and decrease your credit utilization ratio, which can have a significant impact upon your credit score.
Saving your money by putting it into an emergency fund is a good idea, provided you don’t have debts that need to be paid off. If you can save up enough to see you through the cost of living expenses for 6 months, then this will be a good goal. Going broke or being forced to use a credit card if you lose your job unexpectedly or face a dire medical emergency, is not a good situation to be in, so if you can help fund yourself in the face of either one of these unfortunate situations, so much the better.
If you have no debts to pay and a sturdy emergency fund already, then you could take a closer look at your retirement savings and whether that area could do with a boost from your tax refund.
What’s important to remember about your tax refund:
A tax refund is no gift from the government, you’re simply receiving a check from the money that you essentially loaned the government free of charge, and you should treat the money wisely and with respect. That isn’t to say that you shouldn’t blow your refund on something fun and/or frivolous, but you should only do so if you don’t owe money and you have a fund capable of seeing you through some potentially tough times when you’re unable to earn.
It’s also important to remember that tax refunds are often achieved as a result of accurate tax filing and good organisation throughout the year; a tax professional can help you to achieve the tax refund you deserve and keep you on the right side of the IRS.
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