Monday, February 10, 2020

5 ways to stretch your tax refund

Both the Michigan Department of Treasury and the Internal Revenue Service are busy these days processing tax returns and issuing refunds to millions of Americans. The average federal refund last year was $2,869 according to an analysis of data from the IRS.

It’s a sad reality that bars, restaurants, and casinos all get busier when tax refunds arrive. For those who want to use that refund to make a long term difference in your family’s situation, I offer five ways in which you can stretch your tax refund.

Making a payment | Stock photo by StockSnap/Pixabay
Switch to annual payments
Your auto, home, and life insurance premiums. Subscriptions to one streaming service or another. These are just some of the bills that most Americans have that offer a discount if you can pay them on an annual or semi-annual basis instead of paying them monthly. You can save hundreds of dollars by switching to an annual basis and this is one discount that companies are thrilled to give you.

For most Americans most of the year, they simply don’t have enough cash on hand to take advantage of these offers and realize the savings. Your tax refund, however, provides an opportunity to break out of this cycle and start saving money.

I recommend starting with your insurance premiums. Talk with your insurance agent to see what kind of a discount you can get by switching to an annual or semi-annual payment.

Paying | Stock photo by Quinn Kampschrorer/Pixabay
Pay down debt
This one is kind of a no-brainer. The average American has four credit cards and carries a balance of $8,640. If you only make the minimum payments, it will take decades for you to pay that off. Paying down your debt means huge savings in interest charges.This is especially true with high-interest credit cards.

Your tax refund provides an opportunity to pay down some debt. This can either be by taking money directly from your refund check and paying it down or by taking some of the money that you saved from switching to annual payments and adding a few extra bucks to each month’s payment.

For Detroiters looking to get a handle on their debts, help is available through the Financial Empowerment Center. I wrote about this program last November and details about it are available here.

Boost savings | Stock photo by Manuel Alejandro Leon/Pixabay
Boost savings
If you don’t have a savings account, now is the time to start one. If you don’t have at least six months worth of basic living expenses in your savings account, now is the time to make a deposit.

Just like when it came to paying down debt, you can boost your savings directly from your income tax refund or by using the money that you saved from switching to annual payments and/or paying down debts.

Also, remember that you have until April 15, 2020 to make a 2019 contribution to your IRA.

Saving energy | Stock photo by PIRO4D/Pixabay
Energy saving improvements to your home
For most Americans, your home is your single biggest investment by far and utilities are one of the biggest expenses for that investment. By making a few improvements, you not only lower your energy costs but also boost the resale value of your home.

Plus, making energy savings improvements to your home today can also mean a bigger tax refund next year in addition to lower energy bills.

Having fun | Stock photo by Free Photos/Pixabay
Have a little fun
While I believe that the bulk of your tax refund should go towards improving your family’s long term financial strength, there’s nothing wrong with having a little bit of fun along the way. Dinner and a movie with your spouse is a classic option.

For those who want something a little different, websites like Groupon offer deals on all kinds of fun things to do.

These tips are brought to you by the Warrendale Detroit Blog as part of our Tip of the Week series. Please check back next week for more advice on your home, money, and life. The rest of the tips are avilable here.

Please feel free to follow the author Frank Nemecek on Twitter and Instagram as @fnemecek for more great content.

No comments:

Post a Comment