"More than half of all Americans will get a tax refund this year," say Scott and Bethany Palmer, authors of First Comes Love, Then Comes Money: A Couple's Guide to Financial Communication. "Since the average refund is around $2800, that money can make a significant difference to your financial security."
Should you save or spend your income tax refund -- which will hopefully be more than one dollar? Here, the "Money Couple" offers six things to do with your tax refund -- and they're all smart ways to invest your money...
1. Don't spend your refund until you actually have the money. It's tempting to spend your refund as soon as you know it's coming, but, there are no guarantees in life! In the weeks between the time you file your income taxes and the time you get your check, you might have a job change, the TV might die, your child might get accepted to a more expensive college, a friend might fall on hard times and need financial assistance. Be patient and wait until you have your money in hand before you actually spend it.
2. Pay off your credit card, student loan, or other financial debts. Remember that debt - credit card debt, mortgage loans, student loans - costs you money in interest. If you're making monthly payments, make getting rid of debt your top priority. Money you don't have to pay a credit card company is money you can use in other ways.
3. Re-distribute your stock, mutual fund, or retirement savings investments. If you're getting a tax refund, now's the time to look over your retirement savings, college funds, and other long-range investments. A smart way to use your income tax refund (depending on how big it is) is to add several months' worth of funds to your investments. You'll reap financial rewards and achieve financial abundance before you know it!
4. Start an emergency account. The Money Couple says, "We meet with a lot of couples who have all their money tied up in investments. While those are great, it's smart to have a decent stash of money - maybe two or three months worth of living expenses - in a liquid account in case you need it for the proverbial rainy day." If you want your income tax refund to help you save money, you might find 9 Tips for Building an Emergency Savings Account helpful.
5. Invest in your relationships - but be smart about it! If your overall financial picture looks good, then talk about how your family can make the most of your money. Take a fun vacation that increases your bond as a couple or family - perhaps a cheap vacation package to Maui ! Make memories, or purchase something the whole family can enjoy together.
6. Donate to a worthy cause. Many non-profit organizations are struggling in the recession; a $1000 donation can go a long way toward helping others. Give to your faith community, your child's school, or a charitable organization that you already support. Investing your refund not only helps others financially, it'll make you feel fantastic about how you're choosing to spend your money. Plus, a charitable donation can help you with next year's income taxes!
Income tax time can be a headache, but when the numbers add up in your favor - and you get a tax refund - it can be a nice breather for your financial budget.
For more info about the Palmers, visit The Money Couple.
Laurie Pawlik-Kienlen is a full-time writer and blogger who created and maintains five "Quips and Tips" blogs: