Guest Article From Jim McKinley - Tax Time: How to Make the Most of Your Refund

Guest Article From Jim McKinley 

Tax Time: How to Make the Most of Your Refund

Tax time can either come at the best or the worst time for many Americans; some find themselves owing money to the IRS, but in many cases, a refund is due after a year full of hard work, and it’s important to think about how you want to use it. There are several ways you can take that extra cash and turn it into something beneficial, but it’s not always easy to narrow them down. If your home needs maintenance or repairs, this might be a great time to take care of them; after all, you never know when you’ll have the money to spare. You can also use the money for a treat, such as a vacation or a downpayment on a new car.

Sit down and think of some ideas on how to spend your refund. Look over your budget, go through existing debts and bills, and take a look around your home to see if anything needs to be replaced or repaired. Talk to your partner or family member for ideas on how best to use the money; in some cases, it may pay off to save it for a future endeavor or for a rainy day. If you have kids, you might think ahead for back-to-school shopping, summer activities, and extra-curricular necessities (such as a band instrument).

Here are a few ideas on how best to use your tax refund.

Start an Emergency Home Repair Fund

Every homeowner knows how devastating a major repair can be when it comes along at the wrong time. For instance, a roof replacement can be one of the most expensive repairs homeowners face (an asphalt roof replacement in Portland averages just over $8,700). If some damage is present, or if there are broken or missing shingles, make sure you get your roof inspected (an inspection costs an average of $217). Try to save this fund for emergencies only. For example, other repairs may not be as pressing, such as repaving or repairing the driveway.

Prepare for the Coming Months

If summer is coming up, you may need some extra cash on hand for activities with the kids; cooler months may necessitate a new wardrobe for everyone. Think about what the next few months will bring and whether you’re prepared for them. If not, having some cash set aside will likely come in handy. You might also consider where you’ll be; for instance, if you know you’ll be taking unpaid time off work to go on a trip, having some extra money in savings will help you get through that week without disrupting your routine or budget.

Pay Off Your Debt

Paying off debt can be beneficial in many ways, from relieving stress to helping you boost your credit score. Take a look at your bills and think about the best way to use your tax refund to get ahead. In some cases, you may be able to make an extra payment on your car or home — just make sure it will go toward the principal rather than the interest; otherwise, it may not be beneficial to you to do so. Credit card bills are often the biggest hurdle that Americans have to get over, and paying them down can help you get ahead in more ways than one.

Look Into Life Insurance

Although nobody wants to think about tragedy and death, it’s always best to have a plan in mind just in case. One way you can prepare for this worst-case scenario is by having a life insurance policy. So, when your tax refund arrives, put it in the bank and set it aside for your monthly premiums, which will give you peace of mind and give your family a safety net were something to happen to you. Of course, it’s important to understand the different terms you can select and the payouts they provide in the event of your passing. Newcomers to the world of life insurance can check out online tools that will help you determine how much insurance you need.

Start a Savings Account

One of the best ways to use extra money is to not use it at all. Setting aside spare cash for a rainy day, starting a savings account for your child’s college fund or for retirement, or opening up an account for home repairs can help to prevent stress and last-minute scrambles to gather enough cash to pay for the things you need. Look online for more information about the best types of savings accounts for your needs.

Making the most of your tax refund can be tricky, but with careful consideration, you can do it with ease. Create a plan for your money that will help you feel secure for the foreseeable future, and talk to your family members about ideas on how to make your dollars stretch.

For more Contact jmckinley@moneywithjim.org