For many of us, spring flowers also bring that long-awaited tax refund shower. While taxes may seem like just another necessary (and boring) civic duty, they can really make a difference in helping you reach your financial goals. Like a generous birthday check, tax refunds are a small financial windfall. When we leverage them to our advantage we can create real change and lasting results. If your refund could be better spent in any of these places it's time to let go and let save!
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The average American household carries over $16,000 in credit card debt. Debt is stressful, and you should be one of the first things you throw any unexpected in come towards.
If you're thinking your refund won't even make a dent in debt, it actually could mean thousands of dollars in interest savings and months off your repayment. Expedite the process with your refund and get one step closer to the financial freedom you deserve.
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Many graduates leave college with $37,000 in student loans. This number doesn't even account for the interest loans accrue over the course of your education and their repayment. In some cases interest can even end up costing more than the loan itself. Throwing your tax refund at one of your student loans can help you save big in the long run and sleep a little better each night.
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Unless you can see the future, you need an emergency fund. Setting aside three to six months of living expenses means you'll be able to handle anything life throws at you. The truth is that in the event of an emergency, (big or small) the last thing you want to do is worry about is having money to cover it all. Setting aside money now means you'll have a solution later!
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Just because retirement is years away doesn't mean you don't need to plan for it! With banking interest being next to nil, your retirement account is one the best places to set aside money. If your company matches 401k contributions or you have an IRA to max out, investing your refund could amount to a much bigger return later on!
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Tax refunds can make you feel like you won the lottery. Blowing your cash on an impulse buy isn't worth it. Instead, set aside money for a much-needed vacation or special event. Everyone can agree it's the experiences we really remember!
When it comes to refunds don't be reckless. By skipping the short term you'll be able to invest in what really matters!
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.