How To Best Use Your Tax Refund

best ways to use your tax refund

It’s that wonderful time of year, tax season! As we approach the beginning of March I thought it’d be a good idea to fill you in on some of the best ways to use the tax refund you’ll hopefully be receiving soon.

The average refund in 2012 was $2,803….not bad – maybe you plan on getting more or less but regardless, wouldn’t it be nice to do something really constructive with that money?

I’m sure some of you have already stopped reading because you plan on living large with your refund – maybe blowing it on a weekend getaway, or an all day shopping spree. That’s cool, enjoy yourself! For those of you that want to try something different here are few suggestions.

Get Your Refund Faster

Don’t procrastinate!  I probably sound like your high school chemistry teacher, but seriously, don’t wait to file your taxes.  Get it done early and make sure you get that money in your account as fast as possible with direct deposit.   Great, now you’ve got money in hand and you’re ready to put it to work, let’s see what we can do.

1. Peer to Peer Lending

There are a few very high quality and trusted sites that focus on peer to peer lending.  The idea is that borrowers can get access to money at decent rates and investors can earn a decent return on their money.  One of the main peer to peer sites, Prosper.com, claims earnings between 7 and 10 percent for investors – with loan amounts ranging from $2,500 to $25,000.  Not a bad idea for the few thousand dollars you’ll receive as a tax refund.  I’d be interested to hear some reader experiences with P2P lending.

2. Start or Add To Your Emergency Fund

In a recent post, Josh pointed out that close to half (43.9%) of households are “liquid asset poor.”  This means that almost half of American households  lack the savings to cover basic expenses for three months if unemployment, a medical emergency or other crisis leads to a loss of stable income.  Adding to or starting an emergency fund would be a great way to use this year’s tax refund.

3. Pay Down High Interest Debt

Maybe you’ve got a balance on credit card with a 15% interest rate.  Do your future self a quick favor and knock down as much of that high interest debt as you can.  Using your tax refund to pay down debt is another solid idea.  Here’s what I would do: pay off the high interest debt but keep making the payments I was making to myself.  Why make the corner bank rich with interest when you can fill up your own person bank instead!

These are just a few things you could do with your tax refund – the possibilities are endless.  What have you done in the past or plan to do this year with your tax refund?….and dont’ worry this is a no judging zone, so even if you decide to spend it on the newest, biggest flatscreen TV we won’t fault you for it 🙂

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Nick D.

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