Tax Refund: What Are You Doing With Yours?

Posted by howtobe1st on Wednesday, March 13, 2013

A tax refund is to many Americans what a bonus is to Wall Street bankers—it's the largest lump sum the average household sees all year.

So what to do with it?
The average refund is $2,700, and for two-thirds of taxpayers, that's more than a month's paycheck. The temptation to splurge can be great, but the American Tax & Financial Center unit of TurboTax finds that fewer than 10 percent blow the money on a vacation or something similarly fleeting.

Despite Americans' reputation as reckless spenders, most do the responsible thing and use the money to build up savings (29 percent) or to pay down debt (40 percent). Indeed, there's no time of year when we do better at paying off our plastic.
And that's great, as far as it goes, says Michael Kitces, a financial planning specialist in Great Falls, Va. But he says the truly financially astute are not getting a tax refund at all—at least not a large one.

Investing Your Tax Refund
Pete D'arruda, Capital Financial Advisory president, with investment strategies to make the most of your tax refund check.
"A big tax refund means you gave a free loan to the government all year long, and they never even paid you interest," he said.
If you'd rather have access to that money and be collecting the interest yourself, Kitces said, go see your employer's human resources department and update your withholding by filing a new Form W4. The longer you've been with your company, the more your withholding may be out of whack, as life changes such as marriage and children avail you of different tax provisions. Seniors' income can fluctuate depending on factors such as market performance, depending on the retirement plan, Kitces says, and one shouldn't assume it will be the same from year to year.

If you're a small-business owner and you expect a big refund, it's probably a good idea to schedule an appointment with your accountant. Now is also an excellent time to get yourself prepared for 2013 so this time next year you might have a smaller refund but a healthier bank account. In the meantime, what to do with the refund in the mail? In addition to paying down debt, Kitces suggests tending to urgent car and home repairs and shoring up an emergency reserve of six-months' living expenses. Andrew Johnson of GreenPath Debt Solution also advised investing in home energy efficiency, and if you have kids, considering a 529 college savings plan.

Steve Siebold, author of "How Rich People Think," offers a different perspective. He suggests using your refund toward self-development. "Two-thirds of America's rich are self-made, and the No. 1 investment they tell me they've made is in themselves," he said. "Books, seminars, online courses. After all, a new big-screen television isn't going to advance your financial future." An unscientific survey over social media found few who admitted to frivolous intentions for their tax refunds. Instead, "truck repairs," "new computer for work," and "paying down the credit card bill" were on order. And if tax season has you feeling sorry for yourself, consider the response of one Department of Justice worker cum sequestration victim: "We'll need it to pay bills in the event of a furlough."
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One Quarter of US Has More Card Debt Than Savings

Posted by howtobe1st

Rumors of the spendthrift American consumer may be slightly exaggerated. Bankrate's 2013 February Financial Security Index found that a majority of consumers — by a narrow margin — say they have more savings than credit card debt.

For more than half the country, 55 percent, an emergency fund outweighs credit card debt. Nearly a quarter, 24 percent, admit to having more debt on plastic than money in the bank, while 16 percent say they have neither credit card debt nor savings. That puts 40 percent of the population close to the edge of ruin while everyone else seems to be sitting pretty.

If most people have more savings than credit card debt, "Why are so many people broke?" asks Howard Dvorkin, CPA and founder of
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It's a curious question. The answer may be that although credit card balances came down through the financial downturn that began in 2007, consumers' fundamental behavior of not saving enough did not change.

According to the Department of Commerce, for 2012, the overall savings of the average household were 3.9 percent, much better compared to the 0.9 percent Americans were saving in 2001. However, this is down from the average 5.4 percent savings rate in 2008.

Even with a low savings rate, why wouldn't a supposedly low credit card debt rate put Americans in better financial shape?

"The fact of the matter is that America is broke — whether it's mortgages, student loans or credit cards, we are broke. The old rule of thumb is that people should have six months' of savings," Dvorkin says."If you talk to people, most don't have two pennies."

Who's in trouble?
In Bankrate's survey, men were more likely than women to say their emergency fund outweighed credit card debt, at 60 percent, compared to 49 percent of women. But credit card debt hits all kinds of consumers. Bankrate's survey has found that roughly a quarter of all income levels has more credit card debt than savings.
"Credit card debt will eat you alive no matter who you are," Dvorkin says.
$75K+ $50K-$74.9K $30K - $49.9K Under $30K
2011 22% 27% 29% 23%
2012 20% 31% 27% 30%
2013 23% 25% 30% 23%
Source: Bankrate

Those people with incomes more than $75,000 were less likely to have no savings or credit card debt compared to those at the opposite end of the spectrum, with incomes less than $30,000. Only 7 percent of high earners have no credit card debt or savings, while 28 percent of the bottom rung of earners say they aren't in debt but have no savings.
While staying out of credit card debt is a good place to be,having no savings puts low-income earners in danger of falling into a payday-loan cycle or needing to borrow from family or friends. "People who earn less than $30,000 may not have the credit score to get credit cards. That keeps them from getting into trouble with debt, but it also keeps them from saving," says Xavier Epps, CEO and founder of XNE Financial Advising in Woodbridge, Va. For the rest of the population, there may be a fundamental divide between consumers who are fine with carrying credit card balances and dedicated savers who strictly avoid debt. "It tends to be that debt and savings are very lumpy; you rarely find someone that has both. It's either someone has a lot of debt and little to no savings, or someone has savings and very little debt,"says Elliott Orsillo, CFA, co-founder of Season Investments in Colorado Springs, Colo. "There isn't much of a fluid spectrum of people with a ton of savings and no debt and a nice mixture down to people with no savings and lots of debt. It's usually either one or the other," he says. "One of my clients had $400,000 in credit card bills. He came to me because it was impeding his ability to fuel his jet. The credit card companies would not allow him to charge his fuel anymore," he says. No matter how much money you have coming in, learning to save and live beneath your means is the key to getting ahead.
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SAM; Smart About Money

Posted by howtobe1st on Saturday, January 1, 2011

Smart About Money or SAM, is a program of the National Endowment for Financial Education (NEFE) a nonprofitnational foundation dedicated to inspiring empowered financial decision making for individuals and families through every stage of life.

Manage money like as SAM.

SAM is a free, unbiased resource where you can find articles, resources, calculators and tips to help you manage your money through life's ups and downs.

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