Have a plan for when your tax refund arrives
The Key to Using Your Tax Refund Wisely
by Rali Macaulay
How to Spend a Tax Refund
My Story: The Tax Refund that Keeps Giving
Are you getting a refund this tax season and can't wait to spend it? Well, wait a minute. What happened to last year's refund? Can you honestly say you have no regrets for what you did with it all, or at least a significant portion of it?
If you have no regrets, you are confident it was money well spent, and you were in a better financial form than before the refund, congratulations! The more reason you should do even better this year.
Or do you look back and wish you had not been in too much of a hurry to spend? Do you wish you had "remembered" your more pressing needs before you blew all your refunds?
Well, the key is in planning. Plan even before you get your refund. Set an order of priority. Put your plan on paper, and discipline yourself to follow through on it.
Often when we get our refunds, we see it as "free money." But is this what it really is? A lot of people find it hard to save extra to meet the various needs that come across their path all year long, so this should be seen as your savings during the year. Remember, these are payments you made out of your paycheck in the year! It is not "free money." It is your hard-earned dollar. So make the best use of it.
What are your most dire needs? And before you spend, ask yourself, "Do I need this or is this just a spur of the moment desire?"
Do you have debts that keep you up at night with huge interest rates eating deep into your finances every month? Do you have major repairs you have not been able to afford without hurting your monthly budget?
Below are some suggestions on what we can do with our refunds, in no particular order. Arrange them according to your priorities and your peculiar circumstances:
- Pay off, or at least pay down, your credit card debt.
- Make any major home or car repairs you need done.
- If you have no major credit card debt and no repairs needed, it could be time to make that major asset purchase you need like that laptop (or desktop computer) you need for your school or your business.
- Have no retirement fund? Then open an IRA account, even if with the minimum amount. Nothing is too small to start with, as long as the bank will accept it.
- Do you have the desire to take a course or professional exam but couldn't afford it before now? This could be a good opportunity to invest in yourself and improve your future career opportunities.
- Start up a college fund for your kids.
You don't have any debts that need paid down, or any "needs" whatsoever? Then you can also do the following:
- Make extra payments on your mortgage.
- Start an emergency fund or add to an existing one. You could open a Money Market account for this purpose.
Still undecided? Then leave the money in your account. Do nothing with it until the excitement of having extra cash wears down. Then you may be able to analyze your financial status and needs better and draw up a plan. Just don't rush to spend it all, so you are not sorry afterwards.
Take the Next Step:
- Get your biggest tax refund. Start for free at TurboTax.
- Awaiting your tax refund? Do you have a plan for the money? Sit down today and figure out how to best utilize your refund. After all, it is your hard-earned dollar, so use it to its fullest potential.
More Money Tips & Tools
- Why smart people are poor
- Understanding mortgage APR and interest rate
- Do I need a stockbroker or a financial planner?
- Saving-money secrets of the rich and frugal
- 5 low-risk ways to earn higher interest now
- How to save money fast
- 7 IRA withdrawals that don't trigger a penalty
- This week's Readers' Tips