Thursday, April 19, 2012

Spending Tax Refunds Smartly

With the 2011 income tax filing deadline behind us, many people are looking forward to a refund. According to a TD Ameritrade survey, 50 percent of Americans anticipate a refund of either federal or state income taxes. Before the money even arrives, they begin planning how to spend it. Many people are avoiding the urge to splurge, instead planning to spend the money wisely.

Of the survey respondents expecting a refund, 63 percent plan to invest or save at least a portion. Paying down debt will be the goal of 51 percent and 48 percent will apply the money toward household expenses like utility bills or food costs. Only 14 percent have some splurging on their mind, planning to spend the money on a new mobile phone or a vacation.

Rather than viewing the refund as a windfall, consumers should use it to meet their short, medium, and long-range financial goals. Creating an emergency fund that covers living expenses for six to nine months, saving for higher education of a child, and making home repairs are several wise uses. People with credit card debt should repay the highest-interest balances first.

Some people are choosing to invest the money in themselves by starting a legitimate home business with great opportunities for profit. This allows them to experience more freedom and balance their work and personal obligations. They plan to use their knowledge to earn money, eventually bringing others on board to share the income.

A tax refund is not free money, it is a return of money previously paid to the government. From this perspective, it makes sense to spend the money wisely. Getting out of debt, saving for long-term or unexpected expenses, reinvesting money in the home, and starting a business are several ways to put a tax refund to good use.

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