Money Matters: Tips for spending your tax refund wisely
With three out of four taxpayers expected to get a refund this year, tax experts say you should use that money to better your financial outlook in the coming year. YNN's Tara Lynn Wagner filed the following report.
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Doing your taxes may be a drag, but for many, there's a light at the end of the tunnel.
"75 percent of all tax payers tend to get a refund and more importantly than 75 percent of tax getting a refund, the refund averages about $3,000," says Jackson Hewitt Tax Service Chief Tax Officer Mark Steber.
Tempting as it may be to blow it all on a shopping spree, there's probably plenty of other ways you can put that money to better use.
"If you have credit card debt, you are paying an exorbitant rate of interest currently. So I would say the first thing you want to do is put that money towards the payment -- paying down whatever credit card debt that you have," suggests Charles Schwab Vice President Branch Manager Doug Zarookian.
Once your credit cards are in check, look at other debts you may be able to pay off or pay down.
"Go after your student loan, car loan, or maybe even make an extra payment to your mortgage -- to the principal of your mortgage -- which will save you thousands of dollars on the back end," says Consumer Savings Expert Andrea Woroch.
Once your debt is down, your next step should be beefing up your emergency fund.
"An adequate cash reserve depending on who you speak to could be three months expenses, could be six months expenses. Some people even say a year or two of expenses," says Zarookian.
With your immediate finances covered, Zarookian says it's time to focus on the future -- particularly your IRA or company sponsored 401k.
"If you're not contributing enough to take advantage of any matches that may be available you are really losing free money. If you put in a dollar and the company's gonna match 50 percent that's a 50 percent rate of return before you even invest the money. That is something that people should be considering," says Zarookian.
And finally, if you do plan to splurge on a big ticket item, Woroch says a few simple strategies can help stretch that check as far as it will go.
"Look for those online coupons and compare prices. If you're looking for a new TV or new electronic look for last year's models. Also skip those extended warrantees, they're not worth the cost," recommends Woroch.