Thursday, April 7, 2011

Talking Taxes, Part Two

Getting a refund? Here are some smart ways to use the money, provided by the NEFE:

Pay down debt: Don't start with the biggest balance, which many people instinctively do. Instead, start with the card that has the highest interest rate. If there is money left over after you've paid that one off, move to the next card.

Start an emergency fund: Put a chunk of that refund into a bank account so you will have a reserve to pay for an unexpected setback. Strive to sock away three to six months’ worth of expenses. If you can't do that, try to put at least $500 in a savings account where you won't touch it except for emergency.

Save for the future: Invest your refund in an Individual Retirement Account (IRA). Money set aside in an IRA will grow tax-free, and the contribution may be deductible. If you invest in a Roth IRA, the account will be completely tax-free after age 59-1/2.

Pay for needed repairs: If money has been tight and you have put off needed home repairs or work on your car, use your refund to foot the bill.

Prepay bills: Use your refund to prepay your mortgage, car loan, student loans, your annual insurance bill or your quarterly tax payments. Just make sure there are no prepayment penalties.

Splurge a little: If your borrowing and saving strategies are in good shape, go ahead and use your tax refund for a big purchase you have been putting off, such as a vacation or new technology.

4 comments:

  1. An excellent list! I've got this one in my head.

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  2. Not unlike the list I'm keeping, except mine includes ice cream.

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  3. We went for number five and pre-paid most of my quarterlies for this year, which is really nice.

    I'm always tempted by number four because I have so many repairs and enhancements I always want to do on my house!

    And yes, six is definitely a possibility, though I consider a vacation a mental health necessity, not a splurge.

    AH, I think ice cream probably goes in six - and it's affordable even for the smallest refund. ;-)

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  4. We try to do the first three on an ongoing basis. The last three are luxury splurges.

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