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How does America spend tax refunds?
March 21, 2018
Does Uncle Sam owe you money this time of year? If you planned it the way the government wants you to, you are neither paying in, nor receiving a refund of, more than $500. Most of America doesn’t plan that closely, so in 2017, the average tax refund was about $3,000. Now, what do you do with that check? There are all sorts of fun things you can do. . . vacation, down payment on a car, new tv, or. . . the list of possibilities is endless.
With more than 40 percent of Americans living paycheck-to-paycheck, there are things you can do that will help you build a better future and maybe even end that cycle. They could lead you to the best freedom possible, financial freedom.
Pay down your debt. The average consumer credit card debt is $8,721. A $3,000 refund would pay more than 1/3 of that reducing your monthly payments and your total interest. You could save more money each month.
Create an emergency fund. Experts recommend three to six months of expenses set aside in a savings account for emergencies. Having the money set aside will save you from having to use your credit card when money gets tight.
Make an extra mortgage payment. As little as one extra payment per year can shorten a 30-year mortgage by up to seven years. Imagine the freedom of living with no mortgage payment. Just think of all the things you could do with the extra money each month.
Fund your future. Less than one percent of Americans use their tax refund to fund their retirement. If you put that $3,000 in an account with a 7 percent annual interest rate, you will have more than $11,600 in 20 years. Do that each year for 20 years and you will have a substantial retirement to add to your 401k and social security.
Donate to charity. There are a lot of worthy charities out there, pick your favorite and help them. Plus, you get the added benefit of a tax write-off for next year, if you are able to itemize.
There are a lot of things you can do with your tax refund to improve your future or even the future of someone less fortunate. It comes down to your goals. What are you trying to accomplish? Answer that question and you will answer what to do with that refund check.
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