For 2010, tax refunds increased by 10 percent with about $3,036 or $266 larger than a year ago for an average household, based on the report of the federal government. The significant increase this year is principally brought about by the tax benefits available under the stimulus package of the government. The added cash can be used to go for a luxurious cruise or purchase a new appliance or machine. However, wise people may desire to leverage these checks to become financially stable once again.
In recent years, over 75 percent of American taxpayers procure a federal tax refund. If you belong to this group, here are some tips to get back on your feet money-wise.
- Save it for emergency. Every person should save money as an emergency fund that amounts to six months of yearly salary. Regrettably, the economic downturn has left several people without a safety net for the reason that they’ve already spent their rainy day fund or never established one. If you don’t have a savings account yet, this is the right time to open a certificate of deposit or money market account.
- Shell out your credit card debt. Use your refund to recompense your credit card as much as possible. Then assure yourself that you’ll pay your credit card in full amount every month. The longer you postpone the due payment, the higher and higher your debts will be. For instance, if you owe $3,000 on your credit card with 18 percent rate of interest, and you pay only $50 per month, you will finish paying your debt in more than ten years.
- Reduce your rate of interest. Rates of interest are remarkably low nowadays. Thus, if you have not refinanced a mortgage or a home equity, it’s most beneficial to do it now. You can also place your refund to pay your debt to minimize your monthly, quarterly, or yearly payment even more.
- Save money for retirement. To get the highest IRA returns you must examine the option of placing your refund in a Roth Individual Retirement Account for the tax year of 2009. If you establish an IRA and receive a 6 percent rate of return when you turn 35 years of age and add a $3,000 tax refund annually, you will procure about $237,174 when you become 65 years of age. And with a Roth plan, you will never be obligated to pay taxes on your account’s generated income, provided that you follow the IRS rules strictly. Also see IRA tax rules and IRA tax deductions for more information.
- Don’t take professional financial advice too lightly. If you haven’t sought for assistance yet, look for a reputable and trustworthy financial advisor. In spite of the media interest and attention on investing, it is normally not an excellent idea to manage your own investment portfolio. In addition, you must assess the fees that you will incur for opening an account as well as how your advisor will make money. Your chosen advisor must perform all the necessary steps to make money for you, while evaluating your appetite for risk.