Living a Better Life
(featured column. from the editor's desk)
How to Spend Your Tax Refund Wisely
It can really be a challenge to spend our money wisely, especially tax refunds, which may seem like free money! According to the IRS, about 70% of U.S. taxpayers are due a refund this year and the average amount will be over $2,000.00. But once the forms have been filed and the refund checks are in the mail, it’s up to us to spend the money wisely, whether it’s $200.00 or $2,000.00.
"Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.'' - F. J. Raymond
O ften, there are so many things we find ourselves wanting to do with any extra money we receive that we forget some of the more important matters that need to be taken care of, especially once the check arrives and we take it straight to the bank.
And for those of us who are expecting to receive a tax refund this year we can spend that money more wisely by…
Making a Plan!
Taking the time to review your circumstances and your finances before the check arrives is a good idea. Think about your options.
Approximately 50% of taxpayers report they are planning to pay down debts with their tax refunds, and that’s an excellent thing to do with any extra funds you receive throughout the year. Paying down debt will not only save you money in interest charges, but it will also lower your total monthly payments and provide a better cushion for meeting your monthly living expenses, therefore helping you to stop accruing more debt.
However, there are also other wise saving and spending choices to consider.
To make wise decisions about how to save or spend your refund, you need to really think about all of your options. If necessary, make a list with two categories, “needs” and “wants.” Then prioritize your options on each side and try to take care of as many “need” items as you can, before spending all your money on your “want” items.
Here’s a Few Suggestions…
Wise Saving Options
Review your bills that are due annually and put some money away to cover them, such as insurance premiums, home warranties, club memberships, etc… these are what I call “forgotten bills.”
If you find that these bills will not be due for several months it would be a good idea to transfer the money over to your savings account so you’re not tempted to spend it on something else.
If the bills will be due soon go ahead and write the checks out and deduct the amount from your checkbook balance, then mail the check a little closer to the due date. (And if you have an interest bearing checking account you might even earn a few pennies in interest!)
to your emergency fund.
Most financial experts recommend that we have at least 6 months of our monthly income set aside for emergencies, but really any amount is better than none. Just keep this money liquid, where you can get to it in an emergency.
Pay extra on your mortgage, or, if you’re a renter, consider putting your refund towards a savings account for a home of your own—while the interest rates are still so low!
Consider increasing your investments (IRAs, money-market accounts, 401ks – especially if they’re matched by your employer). Do some research to find out what your options are!
Wise Spending Options
Taking care of home and auto maintenance, and especially repairs. Check your tires, if they need replacing that’s a big priority!
If you’ve been putting off health and dental checkups (which could prevent bigger and more costly problems later in the year), now would be a good time to get them scheduled.
And if you don’t have health insurance, maybe your refund could be put towards getting coverage. (We have links for dental plans and free insurance quotes on the site.)
Is there something that your family could use all during the year that might save you money in the long run?
Like maybe an annual membership to AAA
New insulated windows for your home to save on utility costs
Or even a deep freezer that could save you money on dining out each month
Even if money is tight taking a well-needed vacation is not out of the question. We all need a break now and then, and spending quality time with your family is always good. However, you don’t have to spend a fortune to have fun!
Consider taking a long weekend trip instead of an entire week, or visit out-of-state family or friends who’d probably love to see you (and feed you too). You could set a little money aside to take them out to a really nice dinner one night as a thank you!
Invest in your future. If you’ve always wanted to start a business or go back to school to further your education or training, you could see your refund double many times over by taking those steps now.
Increase your charitable donations or help others who are in need.
The choices of what to do with your tax refund or any other financial windfall are endless and taking the time to explore your options will help ensure you spend them wisely.
Please Note: If you are expecting a tax refund you may need to reevaluate your exemptions on your W-4 (see additional article and link below in our resource box).
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Copyright © 2005 by Michelle Jones. All rights reserved.
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