Smart Ways to Spend Your Tax Refund

As of April 2014, the average tax refund for is $2,831, according to the IRS.  While it might be tempting to use this windfall for something fun, like a vacation to someplace warm and exotic, there are better ways to spend your refund that can help improve your finances for years to come.  Yes, you can call me a kill-joy, but delaying gratification can have its rewards in bigger and better ways, like being able to buy your dream home sooner than expected, or being able to take that once in a lifetime vacation that you never thought you would be able to afford, or retiring early.  Laying a solid foundation first will enable you to then focus on the perks in life.  So, before you call your travel agent and book a trip to Cancun consider these three less exciting, but more rewarding ways to spend your tax refund (if you’re not getting a tax refund, look to address these items as you get some spare cash):

  • Get Rid of Credit Card Debt.   Even if your bill is bigger than your refund, it pays to get rid of as much debt as quickly as possible.  If your card charges 18% interest and you pay off all or some of that debt, it is the same as if you earned 18% on your money.  Remember to see which cards carry the highest rates.  Pay those off first and stop using all cards.  If you absolutely must charge, make sure you use a card carrying the lowest rates. 
  • Add to Your Emergency Fund.  It is recommended that you have six months’ worth of      income stashed away in a liquid account (bank account, money market, etc.) in case of illness, or unemployment.  In the event of an emergency, how long could you go on paying your bills?  If your account seems thin, beef it up.
  • Fund Your Investment Accounts.  As part of your monthly budget, it is recommended that      10% of your take home pay goes towards savings.  In addition to adding to your emergency fund and other general savings, this 10% can be satisfied in a number of ways: 
  1. Fund retirement through an employer-sponsored plan.  This has enormous benefits, because the investment often times can be made with pre-tax dollars (lowering your income taxes) and the investment can grow without the effect of taxes, provided you withdraw the money in retirement.  Also, many employers help you save toward retirement by matching a percentage of your contributions.  That is called free money – and it’s hard to find.
  2. Fund an IRA or a Roth IRA (contributions can be made for non-working spouses).  Again, tax-deferred growth is a key  benefit here.  Check with your tax advisor if you qualify for a Roth IRA, as it has unique benefits such as tax-free withdrawals, and the ability to withdraw for reasons other than retirement, such a first-time home purchase, or to meet college costs.  Contribution limits are $5,500 ($6,500 if you are at least 50 years old). Contributions for 2014 can be made until April 15, 2015 (for both IRAs and Roth IRAs).
  3. Add to your child’s college savings.  Whether you open a specific college savings account, such as a Coverdell account or a 529 Plan, or opt for a more general account, such a mutual fund or savings bond, you can take an important step in securing your child’s future.

 If it makes it easier to get started, think of it this way:  you wouldn’t give your kids dessert before they had dinner.  This list is dinner, and there’s no telling what kinds of dessert await you if you take care of this very necessary business first.

Authored by: Anthony Dina Isola

Dina Isola, President of Real$martica, Inc. - COO and Director of Investor Relations, ATI Investment Consulting, Inc. Following a successful career in marketing communications in the financial industry, Dina and her husband, Anthony, founded a registered investment advisory firm, ATI Investment Consulting, Inc., and ultimately the idea for the educational company Real$martica, Inc. was born. In dealing with investors and hearing their concerns, she spearheaded ATI’s investor education efforts, coordinating with local libraries and townships to offer free investor education seminars. She has volunteered her time, writing financial articles and has conducted investor education classes geared to family financial matters. She is President of Real$martica, Inc. and is COO and Director of Investor Relations for ATI Investment Consulting, Inc. and personally handles all communications for both firms. She is active in her local business community and serves on the Brookhaven Business Advisory Council and is a member of the Three Village Chamber of Commerce. She earned a BA in English and Communications from Fairfield University. She is a registered investment adviser, and is a licensedreal estate salesperson in New York State.  Prior to founding Real$martica, Inc. she was a Vice President in charge of marketing communications for a privately-held investment management company in New York City.  She has worked in the financial industry since 1987. thumb_tony_isolasAnthony T. Isola,  President, ATI Investment Consulting, Inc. Anthony has married his passions, investing and education. He is President and founder of ATI Investment Consulting, Inc. (“ATI”) a registered investment advisory firm. His vast knowledge in matters of finance brings a well-rounded perspective to all that he does. As an educator, he has a natural ability to explain complicated economic and financial concepts and make the practical application of these concepts come to life. In working with clients, he recognized how overwhelming building a financial plan can be, especially when most investors are vulnerable due to their ignorance on financial matters. He prides himself on empowering investors to understand how to look out for their interests and not fall prey to financial arrangements that will take them off goal.  In addition to managing assets for clients, he has counseled investors on social security benefits, retirement income assessments, and college planning. He teaches history at Plainview Old Bethpage Middle School and oversees students’ participation in The Stock Market Game and financial literacy for the Plainview Old-Bethpage Central School District. He has taught financial related courses to children, parents and staff members in the district, as well as to Long Island residents. He holds a New York State Permanent Certification (in Social Studies). He earned a BA degree in Economics from Boston University and a MS degree in Secondary Education from Hofstra.  Prior to teaching, he worked as a foreign currency trader in New York City for large international banks.

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