Ahh, it’s that time of year again when people are busy spending their tax refund money before they even have it.
But wait! This all-to-common springtime pattern of using their refund money – or worse, getting a loan to borrow their own money – doesn’t need to become a tradition.
Today we’re going to talk about ways to spend your tax refund money with possible paybacks.
REFUND ANTICIPATION LOANS
In past years we’ve devoted an entire column to citing many reasons for avoiding refund anticipation loans. We’re not going to go into that again today, but take this as a reminder that paying good money to borrow your own money is an expensive way to get your hard earned cash maybe a couple of weeks earlier.
WANT MORE MONEY?
Now if you’re like most Americans who have a tax refund coming, you wouldn’t be human if you didn’t spend it several times over in your mind first. Hawaii would feel pretty good right now!
But just what is the best decision for you and your family? Please allow us to be frankly boring in our suggestions.
While we can’t speak to your individual financial situation, making sure you can pay your mortgage for six months or more by building an emergency fund and getting out of credit card debt should be at the top of everyone’s bucket-list.
Taking care of needed, maybe even dangerous home repairs might be a good first or second choice, too, especially ones, that if left undone will end up costing you much more in the future. Severe water damage, bad electrical or plumbing issues are all good examples.
You’re right, these options are not as exciting as a deserved vacation, a big screen TV or some other gadget you’ve got your eye on, but getting out of debt and staying out, first, is the new symbol of power and restraint for this century.
Paying for a much-needed new roof, replacing an old expensive heat system with a ductless heat pump and weatherization measures have monetary and comfort paybacks. This is a plan where your tax refund could leverage some great rebates. Ask us or the PUD about it.
If you can discipline yourself to pay down or pay off expensive debt and save the difference, the interest you will not be paying could buy some of those toys you want and more – interest free, with cash.
YOU’RE SMART SO TREAT YOURSELF
If you are not convinced, here are the simple nuts and bolts: If you receive $2,000 in a tax refund and use it to pay off a $2,000 credit card balance carrying a 23 percent interest rate, it would normally take you five years to pay off this account making minimum payments of $56. Paying the minimum will cost you an additional $1,383 in interest. To lump-sum pay off this debt would be a very wise way to invest these funds because it will earn 23 percent on your money!
Paying you first in a savings account, then paying your mortgage and essential utilities, then good food, and finally budgeting for new items in the future isn’t exciting at first, but saving money and living debt free reduces anxiety and stress, a lifesaver for the long run!
IF YOU’RE DEBT FREE
If your savings is in place and you’re basically debt free, consider investing in needed maintenance, repairs and upgrades to your home that make sense. Not only does that protect your most valuable investment – your house – it also stimulates our local economy.
With the weather getting warmer, it might be tempting to ignore the problems, but come next fall and winter you might be sorry you didn’t address insulation upgrades and weather-related repairs in a timely manner.
Deferred maintenance encourages additional damage and structural concerns if you leave holes in roofs, water-soaked insulation and wallboard, cracked windows and other problems unattended, the result can be rot, mold and mildew and even health issues.
Maybe you made it through the winter unscathed. You still may have some maintenance items on your house that are worth considering. For instance, in this climate most houses should have the exterior painted every five to seven years. Whether you buy the paint and materials and do the job yourself or hire some local hard-working company to do it for you, painting the exterior is an excellent way to protect your home.
If you don’t own a home, think about using that tax money toward buying a home!
There are numerous first-time home buyer programs besides ours that allow you to get into a house for low-or-no-down payment and minimal closing costs.
So, as it comes closer to the time you’ll receive your hard-earned money back from the government, consideration for what to do with it makes for some interesting choices.
Dave Murnen and Pat Beaty are construction specialists at NeighborWorks of Grays Harbor County, where Murnen is the executive director. This is a non-profit organization committed to creating safe and affordable housing opportunities for all residents of Grays Harbor County.
Do you have questions about home repair, remodeling or becoming a homeowner? Call us at 533-7828, or 1-866-533-7828, or visit us at 710 E. Market St. in Aberdeen.