FRANKFORT, KY (1/11/13) – It’s tax time! In 2012, approximately half of all tax payers received a refund.
If you are in the majority of Americans expecting a tax refund this year, develop a plan now to ensure you are making the best use of this money. The average tax refund in 2012 was about $3,000. For many Americans, this may be the largest lump sum of money received during the year.
Although it might be tempting to spend your tax refund on something fun for you or your family, it is important to develop a plan to use your tax refund to help you meet your financial goals for 2013. Develop a plan on paper, similar to a monthly budget, to spend your refund. Start by making a list of your debts. Consider either making additional payments on your highest interest rate credit card or paying off your smallest debt entirely. Next, build your emergency fund. It is recommended to have 3 to 6 months of living expenses in a savings account, in case of job loss or medical emergency. Look at your monthly budget, can you set some money aside to pay upcoming expenses or save for a family vacation or holiday to help you pay cash in the future and avoid credit card debt?
Consider splitting your refund. The IRS will allow you to split your refund into different accounts. Splitting your tax refund is similar to having your employer or bank split your paycheck between a savings and checking account. Statistics show that if you deposit your paycheck directly into checking, you will save less than splitting the deposit between checking and savings. The same principle applies with your tax refund. You can split your refund if you file electronically or by mail.
Educational programs of the Kentucky Cooperative Extension Service serve all people regardless of race, color, age, sex, religion, disability, or national origin.
Information provided by Laura Holt and Janie Culton
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