9 Ways To Turn Your Tax Refund Into A Personal Budget Boost

9 Ways To Turn Your Tax Refund Into A Personal Budget Boost

If you're getting a tax refund this year, you have the perfect opportunity to start or improve your personal budget. The average tax refund for 2012 was around $2,700, and that can make a real difference in your finances if you're smart with it. Here are 9 ways you can turn this year's tax refund into a personal budget boost.

1. Pay Down Credit Card Debt

The average interest rate on credit cards is 15.61%. Unless you find the best investment ever, you can't get a return like that by investing your tax refund. Pay off one card, or pay down the balances on multiple cards, prioritizing those with the highest interest rates, and think of all the interest you will avoid paying.

2. Build On or Start an Emergency Fund

If you don't have an emergency fund, start one. If you have one, build on it. Work toward having three to six months' worth of living expenses in savings, and you'll take one less hit during a crisis like a layoff. Any emergency savings is better than none. Don't be afraid to start small, because you'll already be ahead of plenty of people.

3. Make Smart Home Improvements

If your central heating and AC system is old and balky, consider replacing it. Today's models are significantly more energy efficient and will save you on utility bills for years to come. Other smart home improvements include installing energy efficient doors, and planting landscaping features that mitigate the effects of summer heat.

4. Make an Extra Mortgage Payment

Extra money you put toward your mortgage should go directly toward your loan's principal to reduce the total amount you'll owe. You'll have more equity in your home and pay your mortgage a little sooner. Before doing this, however, ensure your lender doesn't impose early payment penalties.

Start now: Budgeting software from Mint helps you customize your personal budget for your particular needs. Click to get started.

5. Reexamine Life Insurance Needs

Did you increase your life insurance coverage last time you were expecting a child only to have twins? Did your partner quit his or her job to take care of the home and kids? If so, or if you plan on having another child or buying a house, reexamine your life insurance coverage. You should have at least seven to 10 times your annual salary in coverage, and this can be surprisingly affordable with term life policies.

6. Fund Your IRA

With Roth IRAs, you are making an after-tax contribution, so tax relief is deferred until retirement, whereas with traditional IRAs, you're making a before-tax contribution, but you will probably qualify for a deduction when you file next year's taxes. However, with traditional IRAs, you will pay taxes when you make withdrawals from it when you're older. Either way, saving for retirement should be part of your personal budget.

7. Take a Financial Self-Improvement Course

If you have a sound personal budget, retirement savings, college savings, and an emergency fund, and want to go further and learn how to invest, consider taking an investing or financial planning course. These courses can cost anywhere from under $100 to thousands, so thoroughly vet any course you consider taking to ensure instructors are qualified and don't have ulterior motives (like getting you to buy their financial services).

8. Fund Your Child's 529 Plan for College

The 529 plan is a tax-advantaged method of saving for your child's higher education costs. Though you can invest in out-of-state plans, there are often more benefits to investing within your state's plan, like matching grant or scholarship opportunities. These plans may be prepaid, where you purchase tuition credits at today's rates, or savings plans, where growth is based on market performance of the investments the plan makes.

9. Buy Savings Bonds

Savings bonds may not be exciting, and they take a long time to mature, but they're extremely safe. With as little as $50 you can buy US Savings Bonds, and start earning interest immediately. They are guaranteed never to lose value, and there are no fees to buy them or to cash them in. You can also buy savings bonds in someone else's name, such as for a child or grandchild to jumpstart their savings. The longer you keep a savings bond, the more it grows in value, up to 30 years.

Your tax refund gives you the perfect opportunity to firm up your personal budget, and you can do so in several different ways to suit your needs. Personal budget software like Mint helps you keep track of all your income and spending, and goes with you everywhere you go, with a convenient smartphone app. When it comes to creating or refining a personal budget, there's never any better time than the present.

Start now: Budgeting software from Mint helps you customize your personal budget for your particular needs. Click to get started.