I have been working on my taxes and it looks like my wife and I will be getting an income tax refund this year. That’s good news, because we are in the process of paying off our mortgage and every extra penny counts!
A certain portion of our household income comes through self-employment, so judging withholding can be a bit tricky. We tend to ere on the conservative-side and over-withhold – which usually leads to a bit of a refund.
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Here are a few ideas for what to do with an income refund, including what we are going to do this year –
Create an Emergency Fund – This was so important, for us, when we were preparing to get out of debt. The first thing we did was create a mini-emergency fund – with around $1000. This cash reserve kept us out of the credit-card cycle and really helped us.
Pay Down Consumer Debt – This is No Credit Needed, right?!? We are going to ALWAYS talk about debt reduction. When were paying off credit card debt, we funneled every extra dollar into our debt snowball. This was true for tax refunds.
Start a Side Business – I have done this, using income tax refund money to purchase domain names and pay for hosting. This year’s focus is The Grace Station – where I blog about faith, grace, and other spiritual matters.
Fund a Loan – Peer-to-peer lending is pretty cool. Check out 9.09% Returns With Prosper. It’s a pretty cool way to make some extra money, while funding peer-to-peer loans. Be sure you understand the risks involved!
Open a Retirement Account – Several years ago, I used a portion of an income tax refund to open up a Roth IRA. Now, our savings are growing, tax-free, which rocks.
Plan a Vacation – A small portion of our refund will go towards the reservation at our favorite vacation spot. We get a 20% discount for early reservations, so getting in early helps us save money.
Help Someone – Take a look around and see if there’s an individual or organization that you can bless – and then bless them. This year, we have two local charities that we are going to support, with a portion of our refund.
Save for a Down Payment – We purchased our home four years ago (time flies!) – and we were able to both afford our home and get a low interest rate, in part, because we had a sizable down-payment.
Make an Extra Mortgage Payment – Have you run the calculations, lately? It’s amazing just how much money, over time, and extra mortgage payment can save! We are trying to pay off our 15-year mortgage in less than 10 years, and making an extra payment (or two or three) will go a long ways towards our achieving our goal.
Start Coin Collecting – Spend a few bucks of your refund on A Guidebook of United States Coins 2014: The Official Red Book and then keep your eyes open for rare coins. My son and I have started collecting coins, mainly by sorting through our change and getting a few rolls from our local bank, and we have actually found several coins worth more than their face-value. Pretty cool.
This year, we are going to use a portion of our income tax refund to reserve a spot for vacation, a portion for paying down our mortgage, and a portion for charitable donations.
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