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Make the Most of Your Tax Refund

February 26, 2014 - by Lynn Banks

 

What to do with your tax refund

If you’re like most people, when tax season rolls around, you file and then wait impatiently for your refund…which you’ve spent before the check is even in your hands. How did you spend your refund? A new TV? That great vacation you’ve been wanting to take? 

This year, allU.S. Credit Union in Salinas would like to suggest you think about doing something different with the money you get back from the government. The average tax refund in 2013 was $2,651, which is more than just a little extra spending money. Financial advisors suggest five possibilities for how to make the most out of your tax refund. Check it out!

Pay down high-interest debt. With more Americans getting further into debt, many financial advisors believe it is prudent to use your tax refund to pay off as much of your high-interest debt as possible. They advise making a list of all loans, balances and corresponding interest rates. Start by paying off the highest interest rates first, and work your way from there!

Emergency FundsStart an emergency cash fund. The majority of financial advisors recommend setting up a separate account with three to six months of living expenses saved in the event of a layoff or unforeseen health problems that aren’t covered by insurance. Keep this emergency account separate from your checking and savings   accounts, so as not to drain this fund for non-emergencies.

Invest for your retirement. If you decide to put away your refund for long-term savings, advisors recommend putting it toward your retirement by adding more to your employer’s retirement program or a traditional or Roth Individual Retirement Account (IRA) if you are unable to contribute more to your employer’s program.  allU.S. has several options for your future retirement savings depending on your investment strategies.  We offer flexible, fixed-rate, secure CDs to help you reach your short or long term savings goals. 

Graduation capInvest for your child’s college education. After you’ve built up your own retirement account, you can turn your attention toward building your children’s or grandchildren’s college savings plans. Talk to your financial advisor about which manner best suits your situation.

Add to your regular mutual fund investment account. If you are already contributing the maximum amount to your retirement account, advisors recommend investing in a regular taxable mutual fund to help your money grow.

Adjust your withholdings.  If you consistently receive a large tax refund each year, you may be withholding too much from your paycheck. 
Even though it is nice to get a big check in April, it might be better to save, invest or pay down debt with those funds throughout the year.

Make home improvements.  Have you been delaying getting a new roof or updating your bathroom or kitchen?  Your refund is a great way to pay for those long awaited home improvements.  You’ll not only increase the value of your home, but also decrease your monthly utility bills.

Donate to charitable causes.  Unfortunately, many people can’t afford to donate to charities during the year when their budgets are tight.  If you’ve taken care of your emergency fund and paid down some old debt, you can spend that extra money by giving to a charity. 

Make an extra mortgage payment.  By making one extra payment on your mortgage each year, you can save thousands of dollars off the back end of your loan.

If you are due a tax refund, why not take advantage of IRS Direct Deposit and receive your tax refund up to three weeks earlier.  That’s right!  Instead of wasting time waiting for your check to arrive, or worrying if it will be lost, IRS direct deposit to your allU.S. account will put the money to work for you sooner!

Stop by allU.S. Credit Union at 20 W. Market Street to speak with someone about options for your tax refund this year!

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