Healthy Uses for Your 2014 Tax Refund
By Meghan Northcutt, AFC ® Candidate, FINRA Military Spouse Fellow
It’s that time of the year when you have filed your taxes and your refund check is expected to arrive soon. It’s important to have a solid plan for using your tax refund, because this money can be used as a tool for yourself and your family. Let’s take a look at some healthy uses for your tax refund.
- Add it to your annual spending plan: According to CNN Money, 2014 tax refunds are averaging at $3,034 which is up 3% from the same period of time last year. Dividing your tax refund by 12 can add a significant budgeting advantage to your monthly spending plans. Using the average refund, you could add $252.83 to each month’s budget.
- Reduce Debts: Reduce debt by putting your tax refund toward high interest debts, such as credit cards. Review your statements to see the time frame required to pay off your debts using only minimum payments to choose which debts to pay first. The National Foundation for Credit Counseling shows that paying a bill for $1,424 using a minimum payment of $28 per month will take 12 years and a total of $2,662 including $1,238 of interest to pay off. Consider paying more than the minimum balance if you want to pay off debt quicker.
- Savings: The recommended amount to keep for a “rainy day” fund is between 3 and 6 months of post-tax income, according to Mint.com. This is extremely important for military families, as unexpected PCS orders could come at any time. A “rainy day” fund allows a military spouse to live with less stress while working to find another job at the next duty station. There are many types of savings accounts, and it’s important to look for one that suits your lifestyle. Some banks or credit unions will reward you with a gift card or credit to your account for reaching specified savings goals, but make sure you are not getting stuck paying fees.
- Savings for Children’s Education: The U.S. Securities and Exchange Commission says every state offers at least one type of 529 Plan or Qualified Tuition Plan. The money from these plans can be used to cover qualified higher education expenses. There may be tax benefits for saving under such plans. For more information to decide if such plans are right for you, please visit the U.S. Securities and Exchange Commission.
- Retirement: SaveandInvest.org suggests that saving for retirement is a key step to having a secure financial future. In addition to retirement-savings plans at work (401k, 403b, or TSP), you may think about contributing to an IRA, or Individual Retirement Account. If a spouse is not working, you may still be able to contribute to an IRA on their behalf. It is recommended that you compare your options and compare fees prior to choosing the IRA administrator.
If you need assistance reviewing your options for use of your tax refund, most installations have free financial counseling available through their Family Readiness Center. Additionally, Military One Source provides financial counseling over the phone at no cost to Active Duty, Guard, and Reserve members.
Regardless how you choose to save and use your refund, taking the Military Saves pledge will help hold you to your savings goal, by providing information and resources including a monthly newsletter that can serve as a reminder to save. So take the pledge today!
- Written by Guest Blogger
- Category: Blog
- Published: 25 March 2014