3 Great Things to Do with Your Tax Refund!

I’ve got three financially-sound ideas for making the most of your tax refund!

First, I wanted to let you know about an item related to the home mortgage market. FHA upfront mortgage insurance premiums are rising from 1.75% to 2.25%.

That means, for example if you’re buying a $100,000 home, you’ll be paying an extra $500. You have until April 5 to get the contract submitted, so get cracking!

Now about that tax refund and the three financially- sound strategies for using it! Hopefully, you’ll get that average $2,800 refund or even higher!

First, if the recession has depleted your savings, then it’s time to use that tax refund money to rebuild your emergency fund! Remember, you should always have enough money in savings to pay all your bills for six months in the event of an emergency, layoffs, etc.

Now, this is money you may need to get at quickly, so you don't want to take any risks with it. Therefore, you want to stay with highly-stable investments. This includes insured savings accounts, short-term CDs, or high-quality money market funds.

Second, high-interest credit card debt sucks the life out of your financial well-being, so you want to make paying that debt off a very high priority.

Let me make this point clear. Remember that average $2,800 refund I mentioned above? Well, for the sake of an example, let’s assume you have that same amount on a credit card.

And you’re paying 16% interest on a yearly basis. The card requires a minimum payment of 4% of the balance. If you make that minimum payment, do you know how long it will take you to pay off the debt? 105 months!

But if you applied your $2,800 tax refund to the account, it would eliminate the balance right away and save you $1,297 in interest. You could then invest that money to…make more money!

The best way to eliminate high-interest credit card balances is to take your lowest debt and pay it off. Then, take the savings from paying off that debt and apply it to the next smallest debt…and so forth. Psychologically, this is easier to do, and it makes the whole process less painful.

Now, here’s the third thing you can do with your tax refund – invest it! You need to look to the future as well as the past in order to create financial security for you and your family.

The wisest strategy is to create a mix of investments (“diversified portfolio”) so you spread risk around. This usually includes stocks, bonds, or mutual funds. And, if you don’t have a diversified investment portfolio yet, then it’s time to begin one with your tax refund!

In other words, use a wise investing method to plan for the future and build your net worth! Use money to make money! Remember, if you don’t measure and track your income, how can you be successful?

I hope you enjoyed – and will implement – these three methods of using your tax refund wisely.

If you’d like to talk more on this topic or on any topic related to real estate, call me today at 402.301.4500 or contact me at terry@terrywilliams.com.