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April 16th, 2010
11:57 AM ET

What will you do with your tax refund?

From finance and housing expert Clyde Anderson:

The 15th has come and gone, taxes have been sealed and mailed, or extensions hopefully have been filed. You may be one of many lucky Americans who's receiving a refund - or maybe it's already arrived. The question I pose to you is what are you going to do with that refund? Have you already designated it to a cause, like paying your mortgage or maybe paying off some of that high interest rate debt?

I've compiled 5 suggestions on what you may want to use that coveted tax refund for:

1. Pay off High interest rate credit and debts

Why: Doesn't make sense to invest or hold excess money in savings when your paying 26% on a credit card. Also pay off personal loans, student loans, auto loans

2. Add money to your emergency fund

Why: You should have at least 3-6 months salary saved, especially in this economy to cover monthly necessities, in case you lose a job or income stream.

3. Have money direct-deposited to savings. Most people think twice before withdrawing from savings as opposed to checking

Why: Put some money away in savings to cover the oh yeah bills, oops bills or the forgotten bills, such as insurance premiums, home warranties, club memberships, etc…

4. After high interest rate loans are paid off consider increasing investments (IRAs, money-market accounts, 401ks – especially if they're matched by your employer)

Why: Now that your high interest rate debt is paid, put yourself in position to have compounding interest work for you instead of against you.

5. Start a business

Why: Invest in your future, if you've always wanted to start a business maybe this is the time.

The key to remember is this is your money, not lottery winnings. It's money that you have given to the IRS and haven't earned any interest on. So it would seem to me there is some ground that needs to be recovered. In order to maximize that refund I recommend having a plan and assessing those dollars to a specific cause rather than seeing it lost due to lack of planning.

Look for Clyde Anderson's Home School Segment tomorrow on CNN Saturday Morning with TJ Holmes, beginning 6am ET/ 3am PT.

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soundoff (6 Responses)
  1. LaFawnda

    I will be buying a New exhibit for the Selma Children's Museum.

    April 16, 2010 at 12:01 pm |
  2. Gwendolyn

    Pay my property taxes and other bills. I wish I could save it.

    April 16, 2010 at 12:02 pm |
  3. Carl

    I'm not getting one so will you share yours with me?

    April 16, 2010 at 12:09 pm |
  4. Michael in Phoenix

    Cost my fingers and hope it shows up.

    April 16, 2010 at 2:18 pm |
  5. joyce

    I will put put it in my grandaughters 529 college plan.

    April 17, 2010 at 10:58 am |
  6. Catherine Wilson

    I'm putting my refund into my emergency fund. This year so far I've been in northern New York, southern Virginia, South Carolina, and Georgia and never saw so many closed up store fronts (even in the downtown pedestrian mall in Charlottesville where UVA is!) and Food Stamps and WIC signs in supermarkets in my life. Where is this economic recovery Obama (a lawyer, read: non-financial expert) is talking about? There are entire sections of our country that are financially destroyed and will be lucky if they recover in years.

    I'm an accountant – I'm advising everyone to save their money because from what I'm seeing around the country and from what I'm hearing from even my affluent clients in New York, this economy still is in the doldrums. Yes, jobs may be up, but those new jobs are worthless – less pay and no benefits. So people are working two jobs now to make up for the one they lost (and the lawyers in D.C. count that as two jobs created, not one). So hoard your cash! Besides, for true financial security, it's not what you earn that counts, it's how you spend it. And not spending the refund is the best way to guarantee your own personal financial recovery. Plus, you'll sleep better at night knowing you have at least some money on hand.

    As for the "refunds represent money that you didn't earn interest on" theory – most financial people (unlike me, of course!) don't understand human nature. It's not like that money would have earned any interest anyway – if this money wasn't withheld for tax purposes, those extra few bucks in your wallet each week would simply be spent. A refund is forced savings – I advise clients to aim for refunds and make them withhold more in taxes. We then factor that in as their savings into their budgets. Who cares if they didn't earn interest for that one year? Isn't it better to have accumulated the cash than to have spent it foolishly and not even know where it went?

    April 17, 2010 at 12:35 pm |