In 2011, the average federal income tax refund was $2,985 and two-thirds of taxpayers are expecting a tax refund this year. While some individuals will use the money for every day purchases, vacations or big ticket items, here’s a list of more frugal things to do with your money.
- Pay off debt – This one is obvious but paying off your high interest debt can save you money and give you piece of mind.
- Start an emergency fund – Avoid getting in debt by create an account specifically for emergencies that crop up such as home or car repairs, job loss and vet visits.
- Fund your retirement – The longer you contribute money into IRA accounts, the more compound interest you can accumulate.
- Save for the medium term – Save money for future purchases such as a newer car or new hot water heater.
- Start a 529 account – By contributing $2,985 into a 529 account for your child and it grew at a rate of 6.5% annually; you would have about $9,587 after 18 years.
If you are not receiving a tax refund this year or you owe taxes there are still ways to pay off your debt as well as fund your savings. By selling some of your future periodic payments for a cash lump sum to use to pay off your debts or taxes. Once your debts are paid off, use any remaining money to fund your emergency fund. In addition, the money that you previously allocated towards debt should be reallocated towards funding your various savings accounts. Need help figuring out your finances? Visit our helpful tools to get started.