Several Tips On How To Use Your Federal Tax Refund
It’s that time of again when the New Year’s Day has passed and people start to think about their federal tax refund. If you get money back after filing your taxes, most likely you are the first in line to file, unlike others that dread filing and wait until the deadline because they owe money. However, for those of you who are expecting to receive a refund back from the government, it’s important that you put your new found money to good use.
A Quick Tale On How You Use Your Federal Tax Refund is Important
Now we aren’t saying not to have a little bit of fun, because a treat is always nice once in a while, and you do work so hard all year long. But don’t go blow the whole refund before you have even paid next month’s bills. I want to tell you a quick tale of a friend who would not heed any advice from friends. Let’s call her Sharon.
Sharon worked hard all year long at a minimum wage job. She had two children, lived with her mother in a one bedroom apartment, and shared an old car that needed repair with her mother. She had government assistance for food and extra money to help take care of her children. She waited all year long for tax time to come so she could get her federal tax refund and improve her situation just by a little.
Well, tax time came and she filed and she received a huge return. She received over seven thousand dollars and she waited by the mailbox for that check to come. All her friends were so happy for her. She could put a down payment on a an apartment for her and her children, get her kids new clothes, maybe even by a cheap used car for one thousand dollars.
Well the check arrived. Sharon called all her friends and told them how she was planning on using it. She rented a small place on the beach for the weekend and planned on partying with all the money. She wanted all her friends to come out and party with her. I tried to convince what a bad idea that might be, but she was stubborn and refused to listen. Seven thousand dollars was gone in one weekend and come that Monday when she got back into town, Sharon was worried how she was going to pay next month’s bills and buy he kids food because her food stamps were used toward the party.
So, now that you’ve heard that story, I hope you might take at least use one tip off this list of advice.
Pay Down Bad Debt
Paying down bad debt with your federal tax refund is a wise move for many people. Cancelling out high rate car loans, pay day loans and credit cards could leave a lot more disposable income left on the table each week . Homeowners might be interested in putting down a chunk towards reducing the principal on their mortgage, liens affecting their home’s title, or even those still underwater – dedicating that cash to bring to the closing table.
Home Improvements
Homeowners planning to stay for the long run or found their forever home, those hoping to sell their houses quickly, and investors may benefit from home improvements. Each addition should improve the appeal of your property. Just make sure to do your homework and educate yourself on which types of improvements will not only yield positive results, but deliver the maximum returns on the investment before using that federal tax refund.
Fund Your IRA
If you don’t have an IRA, this is the time to get one. Make sure you contribute as much as you can from your federal tax refund and convert to a ‘real estate’ or self-directed IRA, which can be used to invest for higher returns. Higher returns on your investment are always a good thing!
Invest in Real Estate
Even with a few thousand dollars, there are ways to invest in real estate. It doesn’t take a genius to figure out how much better this can be than blowing the capital on hand. Use it to flip a house, as a down payment on an income producing rental property, to buy lots or land for long term holding either as an investment, inheritance or to build your dream home on in the future, or even partner up and do a joint or financial partnership with a real estate redeveloper on something larger.
Use Your Federal Tax Refund To Invest in Your Children
Instead of simply investing in real estate, why not put it all together and set your kids up with some funds to invest in real estate for themselves. This way, they can start taking control of their financial future early. Wouldn’t we all be in a better position if our parents did that for us?
More Tax Deductions with that Federal Tax Refund
If you absolutely must blow all your federal tax refund, at least do it on items which could potentially yield more tax deductions and write offs next season