Money Monday: Do You Have Plans for Your Income Tax Refund?

Tips on making the most of your money this tax season.

Posted: 01/14/2013 03:00 PM EST

While some people cringe at the thought of tax season and the April 15 deadline, others are excited as they anticipate the extra money they’ll receive from their income tax refund. This year, instead of making plans to spend your refund on splurges, consider more productive ways to make the extra money work for you.

From Refund to Debt Free

There aren’t many times in the year where you can acquire a lump sum of money. Consider applying your income tax refund to existing debt, or paying bills ahead of time to free up cash for paying down debt throughout the year. Being able to knock off anything above and beyond your regularly planned payments will help you to get ahead – and proactively work towards your financial goals.

Yes, a small treat might be in order, but remember to focus on long-term goals versus short-term satisfaction.   

Out of Sight, Out of Mind: Saving Tax Dollars

Watching a lump sum of money sit in a bank account can be very tempting, and resisting the temptation to spend can be hard for many. In the current market, CDs (or Certificate of Deposit) offer some of the highest interest rates and are one of the fastest ways to make your money grow, in comparison to traditional savings accounts. 

CDs are considered “time-deposits” where money is held for a period of time (typically a few months to years) based on agreed upon terms. At the end of the terms, you are able to withdraw your funds and collect the interest, move them to a traditional checking or savings account, or roll the savings over to another CD. However, there are generally restrictions and penalties for withdrawing money before the agreed upon terms.

Investing Income Tax Dollars

Looking for a responsible way to use your income tax refund? What about making your money grow by investing? It really doesn’t matter if you’re a novice at understanding investment tools and options. Like anything else, the more you learn the better you will become. Don’t act on assumptions. For instance, many people believe that you need a fortune to get started. This isn’t true; some investors start off with as little as $50.

If you still feel unsure, consider working with friends and relatives to learn more about investing, and then start an investment club.

So, whether you decide to pay off debt, save, or invest your income tax refund, be sure to make informed decisions.

There are many resources online that will explain the basics and provide you with the necessary tools to get started. Here are two to get started:

— http://www.handsonbanking.org/en/index.html

http://www.wellsfargo.com/financial-education/investing/online-investing

 

This article has been prepared for informational purposes only.The accuracy and completeness of this information is not guaranteed and is subject to change. Since each individual’s financial situation is unique, you need to review your financial objectives to determine which approaches might work best for you.

 

© 2012 Wells Fargo Bank, N.A. All rights reserved.

 

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