Smart SpendingSmart Spending

7 ways to make money with your tax refund

They say it takes money to make money. If you're about to get a tax refund, here are 7 ways to leverage that cash into more.

By Stacy Johnson Feb 27, 2013 11:23AM

This post comes from Brandon Ballenger at partner site Money Talks News.

 

Money Talks News logoLast year, more than 110 million Americans received a tax refund, averaging $2,803, the Internal Revenue Service says.

 

But a January increase in payroll taxes meant a smaller paycheck for most Americans going forward, so fewer people will run out and buy a new TV or car with the windfall, predicts the National Retail Federation. Nearly half of those expecting a refund plan to pay down debt, and an additional 40% will put it into savings.

 

Good thinking, but can you do more? 

If you're not sure what to do with your refund this year, here are some ideas that will make you richer. 

 

Image: Paying taxes (© Rubberball Productions/Getty Images)1. Pay down debt.

Use your refund to reduce high-interest balances. Not only does this cut down the interest charges and overall amount you owe, it may also improve your credit score by lowering your credit-utilization ratio. A better score can mean easier access to credit at better interest rates.

 

Look at it this way: Paying down an 18% interest credit card is like earning 18%, risk-free and tax-free. There aren't many investments offering returns like that.

 

2. Create an emergency fund.

Living paycheck to paycheck often means there's never enough to get ahead. Use your refund to build a financial cushion, ideally enough to cover at least three months of living expenses. Then bills always get paid on time, which saves late fees. You never need a cash advance, saving fees and high interest. Plus, you can stock up on bargains at the grocery store and other places.

 

If you already have an emergency fund, set the money aside for something you know you'll have to replace eventually, like a car.

 

3. Save on insurance.

Many car insurance companies offer a discount if you pay the six- or 12-month premium in full. Use a chunk of your refund to do that, and put the rest in a savings account so you can raise your car insurance deductible -- a simple way to save 10% to 20% on your premium.

 

4. Create a tax break. 

Make energy-efficient improvements to your home, pump up a retirement plan, or donate to charity, and your tax refund will be doing double duty, because you'll be creating a tax credit or deduction you can use next tax season.

 

5. Start a business.

Use your refund as seed money for a side business or for classes in a skill you've always wanted to learn. You could launch a website, sell your own arts and crafts, or start a garden and sell your extra fruits and veggies at a farmers market. Boosting your skills might be good leverage for a raise.

 

6. Think big.

If you're going to blow the money, at least make it an event to remember -- skydiving or something else you've dreamed of doing. In short, if you're going to spend the money, don't make a purchase, make a memory.

 

7. Invest.

You could start funding a 529 college savings plan for your child or open an individual retirement account for yourself. Earn 10% annually for 20 years and your $3,000 refund will blossom into $20,000. Make it a habit and invest $3,000 every year for 20 years, earn that same 10%, and you'll end up with more than $200,000.

 

More on Money Talks News and MSN Money:

24Comments
Mar 1, 2013 4:00PM
avatar

Because I'm forced to live frugally, I live frugally.  Before I was forced to live frugally  I lived

economically or thrifty. When I lived thrifty, I was very proud of myself.  I bought second-

hand clothing, repaired my dress shoes, refrained from attending events which charged

fees, and only indulged in fast-food eating-out extravaganzas. I did without cable, cell

phones, heat and vacations.

 

Then somewhere along the way I became frugal.  I started to identify with Midas.  I

wasted less food, almost never ate out, did laundry less often and in general spent

a great deal less for cleaning products; I only took the car out weekly, then tri-monthly.

I stretched the soup, and bought $40 of canned soup during the chain grocers annual

clearance sales.  I ate meat perhaps once a week.  I even went back to coupon cutting.

 

The end of the story is that thee years later, I still can afford to live only on SSA Benefits.

Which is fortunate because that's all the income I generate in a year.  Ten years ago

I lived on a salaried income of substantially more than my SSA benefits. Had I initiated

stiff spending limits several decades ago, I am sure I'd have much more saved than

presently. No one LIKES to downscale their lifestyle but a few will do it earlier than

others and benefit from it greatly.  I found that cutting one vice or 'weakness' at a time

aided my savings' balances.  I found that habits acquired in my twenties were costing

me more than I wanted in my sixties. I learned that self-honesty coupled with modesty

and deep frugality actually imparted a sense of serenity to my life which certainly was

priceless. So like a kid, crawl down to stand up and smile because of sane wisdom.

Mar 1, 2013 7:22PM
avatar
Best to pay debt down, if you receive a tax refund, and save some.  You should enjoy at least 1 event or outing, as times are already hard enough.
Mar 1, 2013 8:28PM
avatar
I used my tax refunds for down payments on 5Kw of Solar Panels. (They pay forthemselves in about 7 years). Then I also get a big tax credit for the next year..which allowed me to do it again. Now I am on my 3rd set and have no electric bill. All politics asside, I looked at the bottom line. Thats $300 a month that I can keep and use on other things. Over the 40 year lifespan of the panels,  thats a lot of cash saved! Utilities are not getting cheaper. Take advantage of the new tech and set yourself up long term.
Mar 3, 2013 8:33PM
avatar
Excuse me...way number 7....."Earn 10% annually for 20 years" ?  Stop right there.  How do I do that?  I have been trying for years to get 10% back on something..any investment and had no luck.  I cannot be a day trader and every stock and mutual fund and they never guarantee any returns and invariably dissapoint.  Am I alone here?  Maybe I am thick but I could use help learning how to get this very disirable 10% back for myself, never mind if I had a kid.  I do not know of anyone who claims to make that on thier investments. I am 54 and I remember when I was getting over 7% interest (yes, seven) on my bank savings account. That was back when I did not know that if I had saved a percentage of my hard earned supermarket wagon pushing money, I would not be writing to websites like this one today.  Live and learn, eh? 
Mar 1, 2013 9:42PM
avatar
Most suggestions would not "MAKE" money, thus misleading title. 
Mar 1, 2013 8:12PM
avatar
Whatever I get goes right into savings
Mar 4, 2013 5:56AM
avatar
Definitely pay down any high interest debt you have.  Most families now days do not understand how they got so in debt.  Their paychecks paid their bills but left little left over for gas and groceries, so those went on a credit card.  The minimum payments go up and if they were lucky enough to get a raise, they could still afford the minimum payments, but gas and groceries still go on a credit card.  They can only keep this up for so long before they have 1000s in debt.  Reverse that trend.  Send as much as you can to pay down these debts, thus reducing those minimum payments.  Then your paychecks go farther and the less you have to use those credit cards.  A few years of living within your means and following this formula and you will feel rich.  Takes a lot of discipline. 
Mar 1, 2013 7:28PM
avatar
Or, you could donate it to Congress.  They know how to handle money!
Mar 4, 2013 8:36AM
avatar
  If the average tax payer is receiving over $2800 in a return , then you're paying to much in taxes to begin with . All the IRS is doing is giving you back your money that you over paid . You want to owe the IRS money , not the other way around . I'm not talking about owing them a lot, something in the range of $100 . That $2800 over paid you could use during the year , instead of waiting for it after you file your taxes .  
Mar 1, 2013 9:11PM
avatar
After 25 years, the days of having a $3,000 tax refund are over. The kid is out of school and has a part time job so I can't claim her as a deduction. My refund is under $250. That hurts ... ouch.
Mar 1, 2013 8:10PM
avatar
.....Could just donate it to the Syrian Rebels Victory Fund. Everything $60 million helps their cause.
Mar 4, 2013 11:51AM
avatar
I hate the suggestion to invest it and earn 10% annually for 20 years.  As if it was really that simple.  Please let me know where you have a guaranteed investment that earns 10% for 20 years, and I will be happy to follow your advice.  My savings accounts is making .8% at the moment, so how long do I have to leave my 3 grand in at that rate to make it turn into 20k?!!  Absurd.
Mar 4, 2013 12:51PM
avatar
Paying down debt doesn't make money neither does a vacation.  Also a 10% return right now is impossible whoever thought up that percentage pulled it out of their a$$.
Mar 4, 2013 12:49PM
avatar
What insurance is going to give you a 20% discount for paying a years worth of premiums at once?
Mar 4, 2013 12:07PM
avatar
did ya'll know..Ceasar NOW gets MORE than God! God only asks us to RETURN of 10% , He does not TAKE TAKE TAKE...
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

LATEST BLOG POSTS

Can you trust Carfax?

If you're thinking about buying a car and the Carfax report comes back clean, you're good to go, right? Um, maybe not. Here are four other ways you can avoid buying a clunker.

VIDEO ON MSN MONEY

TOOLS

More