Smart Ways to Spend Your Tax Refund
You could improve your finances with the cash you get back from Uncle Sam.
Considering that the average tax refund this filing season has been about $2,900, it's tempting to spend that money on something you really want -- say a big-screen TV, tech toys or new clothes. But a recent survey by account organization service Manilla.com found that only 11% of respondents plan to spend their refunds on a big-ticket item. The majority of those surveyed said they will use the money to pay off debt or will save it.
If you're looking for ways to put your refund to work for you, here are four good uses of the money. And check out our 10 Smart Uses for Your Refund slide show for more ideas.
Create an emergency fund. About one-third of Americans don't have an emergency fund and, as a result, don’t have sufficient savings to pay for unexpected expenses, according to a recent survey by the Consumer Federation of America and American Savings Education Council. The average tax refund of nearly $2,900 can get an emergency fund off to a great start. Open an interest-bearing savings account and have the money directly deposited into it so you won’t be tempted to use it. See 7 Strategies to Build an Emergency Fund
Open a Roth IRA. The beauty of this retirement account is that you can access contributions penalty-free and tax-free at any time and withdraw earnings tax-free after age 59½. You can contribute up to $5,500 ($6,500 if you're 50 or older) to a Roth IRA in 2013 if your income falls below a certain level. See 2013 Retirement Account Contribution Limits to learn more.
Hire a lawyer to help you write a will. Online forms can be an affordable way to write a will if your finances are uncomplicated. But if your circumstances are complex, you should hire a lawyer to help you draft estate-planning documents. Expect to pay about $300 for a simple will. You could pay up to $1,000 for a more comprehensive estate plan that includes a living will or health-care directive and a power of attorney document.
Improve your home's curb appeal. For $2,000 or less you can add several evergreen plants, redo a small backyard, install landscape lighting or even hire a landscape designer or architect to create a plan for your yard. See Cheap Ways to Improve Curb Appeal for more ideas.