 Still uncertain? See '5 ways to invest your tax refund', by MSN Money columnist M.P. Dunleavey Other related Articles Reduce your taxes step-by-step Your biggest tax breaks for 2002 America’s favorite tax break: deductible mortgage interest |
16 great ways to spend your tax refund Don't fritter away the money the IRS returns to you. Better to make a real improvement in your life with an investment, a savvy one-time purchase, a home improvement or even a memorable splurge. By Dana Dratch, Bankrate.com With April 15 behind us, tax refunds are next issue for many people. Lower tax rates, increased child tax credits and lots of early e-filers are keeping the Internal Revenue Service busy cutting checks. And those checks are not too shabby. The IRS reports that through mid-March, the average refund was just over $2,000.
While your refund may not be quite that generous, any amount can go a long way if you think before you spend. Try one of these money-smart suggestions: Invest it 1. Pay down that credit-card debt. OK, so this doesn't sound as appealing as a new DVD player. But if you can knock out -- or knock down -- the balance of even one high-interest credit card, you're making money. Think of all the interest you won't be paying. 2. Open an IRA, or direct the amount of your refund toward your contribution. Been putting this move off until you had "a little extra money?" Today's your lucky day. Any amount "will compound nicely," says Chris Farrell, author of "Right on the Money. " 3. Take stock. Want to pick up a special present for that new grad? How about some stock? Whether you go biotech or blue chip, choose something they use or identify with. "It's a gift that grows over time," says Farrell. "And it also encourages them to be aware of the stock market and gives them an incentive to follow it." Or maybe you want to buy into a stock fund for yourself. A $600 windfall can blossom into $10,000 if you get a 10% return over 30 years, says Ric Edelman, author of "Ordinary People, Extraordinary Wealth." Even a few hundred dollars can get your nest egg off to a nice start. "The biggest mistake people make is thinking (what they have) is too small an amount to invest," says Edelman. "Rich people start off as poor people. The difference is they take the nickels and dimes and they invest it -- they didn't spend it all at the mall." 4. Set up a rainy-day fund. "Most people have a checking account and a savings account," says Farrell. "I like for them to set up a separate mutual fund account." The money is there in an emergency, but since you can't just empty it out by writing a series of little checks you're less likely to touch it. The standard rule of thumb is to sock away three to six months of living expenses. So start with your refund and take it from there. Smart buys 5. Invest in yourself. Been putting off buying a piece of equipment or software that would really boost your home business? Now's the time to sink money into your earning potential. But be honest with yourself -- do you need it or just want it? If it's really an investment, it should save you time, money or both. Good buys right now: printers, fax machines and time-saving software. Also re-evaluate your communications links. If you need faster downloads, investigate a cable modem or DSL connection. But be sure to bank any of the leftover return to pay higher monthly ISP rates. 6. Buy a computer. If you've been planning on getting the family a computer, now's a good time. Thank a price war that's bringing the classic family computer into the $800 to $1,000 range, says Farrell. Even if your refund won't cover everything, it could help make a down payment. Right at home 7. Refinance your house. If you've been looking at refinancing -- and if you haven't, you should -- here's a piece of change to put toward closing costs. Depending on the deal you get with your lender, your refund might not cover the whole cost, "but it could take care of a nice chunk," says Farrell. With 30-year fixed rates hovering around 7%, "it makes a lot of sense for a lot of people to refinance," he says. As a result, many homeowners with adjustable-rate mortgages are switching to fixed rates, while many with 30-year notes are signing up for 15-year deals. If you want to make the jump, "Start shopping now," says Farrell. 8. Add it to your mortgage payment. "For most people, this is better than putting it in a savings account," says Robert Van Order, chief economist in the financial research division of Freddie Mac. Even with an 8% mortgage rate, knocking an extra $300 off your principal now will save you close to $3,000 over the next 30 years, while $600 will bring you twice as much. 9. Draw up a plan. Thinking of a do-it-yourself landscaping or remodeling job? Take the tax refund and get a professional to sketch out a plan for you to follow. For a few hundred dollars you will know exactly what you're getting into and how much of it you want to do yourself. Plus increasing the value of your home puts extra equity in your pocket. Insurance 10. Increase your deductible. If you're paying through the ear for a low deductible, bank your tax return and increase your deductible by the same amount. Warning: Just because you still have the money doesn't mean you can spend it. Put it in your rainy-day fund and enjoy spending the money you're not paying in premiums. Auto 11. Details, details, details. Planning on selling your car anytime soon? "Getting your car detailed can make a huge difference if you are putting it up for sale," said John Clor, the Detroit editor for Edmunds.com. A thorough job, which costs about $175 for inside and out, can increase the price you get by as much as $1,000, says Clor. 12. Service your car. "The number one thing people forget with cars is to maintain them," says Clor. If you've been putting off that oil change and tune-up because you just didn't have the money, this is the time. And check the tires. Extra bonus: A well-maintained car with properly inflated tires burns less gas and saves you money in the long run. Just for fun If you've had your nose to the grindstone all year you might just want to take the money and run. And with a little planning, any amount can give you a nice little break. Besides, a well-needed vacation is a better return on your money than a pile of cash register receipts. "The one thing you don't want to do is put it in your checking account and fritter it away," said Farrell. "At least have a memory that comes out of the money." Here are a couple of getaways to consider: 13. Get the star treatment. Treat yourself and your partner to a full day at a local spa. "Three hundred to $600 should just about do it," said Farrell. "You'll be totally relaxed, feel good and it's probably something you wouldn't do under normal circumstances." 14. Go out on the town. Whether it's theater, the symphony, ballet or a rock concert -- have a great dinner and take in a live show. "You'll have a really nice memory," said Farrell. 15. Ride the rails. If you want to see North America, Amtrak often has deals. Senior and student fares are even lower. Basically, you can go anywhere that Amtrak or Via (the Canadian passenger railroad) goes. "If you've got the time, this is an extraordinary deal," said Edward Hasbrouck, author of "The Practical Nomad" travel series. It's especially great for seniors with relatives scattered across North America or students who want to visit friends. One warning: Check out the destinations and make sure the trains visit the cities you want to see. 16. Try Canada. Want a great splurge vacation? How about Canada? With the current weakness of the Canadian dollar, first-class accommodations are very inexpensive and Americans are very welcome. For a trip with a European flair, try Montreal. "It's a wonderful place for a getaway," said Hasbrouck. "You can feel you've gone someplace very different without going that far." From major cities, you can fly to some Canadian destinations for $400 or less round-trip -- especially if you're willing to be flexible about airlines and travel times, said Hasbrouck. And while $200 wouldn't get you one night in a five-star hotel in the States, in Canada it will buy you two or three nights in four- or five-star luxury. "The softness of the Canadian dollar means greenbacks go very far in Canada these days," Hasbrouck said. "You could have a very nice getaway." 
| ||||