How to get more out of your tax refund


Special to Civitas Media



Income tax season is a happy time for many people. Those who anticipate a considerable refund on their taxes look forward to having extra money; some individuals even plan to finance big-ticket purchases entirely with their tax refunds.

Smart money management can turn a refund check into a nice nest egg or stretch dollars to make the most of this windfall of cash. The following money-management tips can help anyone develop strong saving and spending habits that can pay dividends for years to come.

GET ORGANIZED

When looking to make the most of your tax refund, start by organizing your financial documents and getting a grasp on your spending and saving behaviors. Examine your income-to-expenditures ratio to see where the majority of your money is going. It can be difficult to make significant changes with regard to your finances if you don’t have ready access to your financial records and a strong appreciation of how your money is being spent.

PAY OFF HIGH-INTEREST LOANS

When addressing your finances, take inventory of any high-interest loans, including credit card bills. It will save you more money in the long run to pay off this type of debt as soon as possible. The earlier such debts are eradicated, the less you will ultimately pay in interest. What’s more, paying off debt helps establish a better credit record and score, which can make you eligible for lower interest rates in the future. Using a refund to eliminate debt is more beneficial than simply letting the refund sit in the bank, where it’s likely to accrue less interest each month than the interest that accrues on your credit accounts with outstanding balances.

INVESTIGATE SAVINGS PROGRAMS

It is estimated that customers who don’t have an account at a bank or credit union spend, on average, more than $800 at check-cashing businesses each year. Opening up an account with a credit union or bank will immediately save you money on check-cashing fees. Speaking with a banking representative can also provide information about various programs that will enable you to save your tax refund and earn money on it through interest accumulation. In the National Retail Federation’s annual Tax Returns Study, 40.2 percent of respondents said they planned to stash some of their refund in savings in 2013. While traditional savings or checking accounts may offer nominal interest rates, longer-term certificate of deposits or money market accounts may yield more interest.

TALK TO AN INVESTMENT SPECIALIST

Your income tax refund may be just what you need to start investing. A 2012 study by TD Ameritrade indicated 63 percent of respondents said they plan to save or invest at least part of the money they get back on their taxes. A financial planner or stock broker can guide you through potential investments that carry the right portfolio and level of risk for your needs. If you prefer to do the work yourself, many investment companies have user-friendly websites where account holders can manage their own investments and monitor the daily performance of those investments. With the right investment, you can turn your refund into a substantial amount of money over the course of several years.

Stretching tax refund dollars means making smart choices regarding money management. Rather than splurging tax returns on big-ticket items, use your refund to grow your savings, begin an investment portfolio or pay down debt.

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Special to Civitas Media

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