Ask The Money Coach

Q: I Want To Use My Tax Refund Money Wisely This Year So I Can Build a Strong Foundation for Me and My Two Little Girls. I Have Not Been Very Smart With My Past Money Choices. How Can I Make My Money Work For Me This Time?

A: Congratulations for wanting to improve not only your own financial circumstances, but also that of your two daughters. You did not state how large a tax refund you expect to receive, but I do know that the IRS says the average tax refund doled out in 2010 will be about $2,800. Here are three suggestions on how to manage your refund check wisely. First, set aside 25% of your refund for savings. Put the money into an emergency fund that you don’t touch. Keep that money as a cash cushion, and slowly add money to it, little by little each month. Next, use 25% of the money to pay off credit card debt or any consumer debt you may owe. Lastly, use the final 50% of your refund check to save for your daughters’ future college education. Take the money and open a 529 plan for each child. A 529 plan is a state-sponsored college savings plan with great tax benefits. You can learn more about these college savings plans at http://www.savingforcollege.com. If you take these steps, you’ll be empowering yourself and your family, and you’ll know beyond a doubt that you managed that income tax return wisely.

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