The average tax refund is $3000.00 and that's a nice chunk of change. Now that you've filed your taxes and are waiting to receive your refund, what you should do with it? I discussed several options with my son, Ronel, daughter, Ahsha and family friend, Danielle. There was a definite list of what they would not spend their refund on such as paying down student loan debt, Several options are available.
Start an Emergency Fund: With your windfall, you now have the opportunity to start that emergency savings fund that you never seemed to have enough money to fund. In this economy, everyone should have an emergency fund to cover your monthly expenses in case of layoff or other job loss.
Pay off Debt: In most cases, its always a good time to pay off debt. The only time this doesn't work is if you are thinking about filing bankruptcy. If that's your situation, you don't want to use your money to pay off debts. You want to use your tax refund to pay ordinary living expenses, but not to pay off debt. Filing bankruptcy under Chapter 7 and paying more than your monthly amounts, can leave you open to a claim by the Trustee of preferential treatment. If you're not filing bankruptcy, you should select at least one debt that can be paid off and saive the rest. While paying more than the usual amount to a creditor is not permitted, paying your attorney is permitted. Often this is the way that clients pay for their Chapter 7 bankruptcies or get set up on one of our reasonable auto payment options.
Invest It: Another idea is to invest the windfall into you received for college education, to fund your 2012 IRA account. You could also buy some stock in a company that you use a lot...Facebook! Investing in what you know is always the best bet. This could also be the opportunity to start that new business you've always wanted to start.
Do Something For Yourself or Others: My final suggestion is to consider taking a vacation or making an extra charitable donation to your church or other charity. Think out of the box and see if you can apply your creative thinking to find something financially productive to do with your windfall. Don't forget that tax refunds are often the result of over withholding your yearly tax obligation. If you have monthly living expenses and other debt obligations, perhaps you should consider adjusting your tax withholding to have access to your monies and earned income during the tax year through the Advance Earned Income program. Use this withholding calculator to help you determine how to adjust your withholding for 2012.
Denise Brown's Legal Direction provides balanced bankruptcy counsel to individuals, families and businesses throughout Kentucky and Southern Indiana. Consultations are free and are available by phone and/or in the office. Weekend appointments available. To schedule your free consultation, visit us at www.4realdirection.com.