Tiffany Raiford
Those who get a tax refund think they are lucky; they are not. Well, let’s go ahead and explain what we mean. Receiving a check in the mail is certainly a luxury, but that money is yours. You worked very hard for that money and rightfully, it belongs to you. What you’re doing is providing it to the federal government throughout the year to hold onto for you in an interest-free account. In layman’s terms; you’re giving your money away free of charge just to get it back. You just loaned the government X amount of money to hold onto and you’re not earning interest on this money. If you were to put the money you pay them into an interest-bearing account each month, you’d have much more to your name at the end of the year. Unfortunately, the government doesn’t really go do that. You can, however, talk to your employer about changing your tax status so that you can, depending on your tax and personal situation, provide as little as possible to the government. If you’re not doing that and you do receive a refund, though, you might want to know how it is you can use that refund to your advantage. We can’t tell you what to do (nor would we be so presumptuous as to try) but we can provide you with a few simple ideas when it comes to using that income tax refund.
Pay Off Debt
If you have debts, the first thing you need to do with your income tax refund is pay them off. Owing money to others and paying interest is the quickest way to become poor and miserable, so go ahead and make that stop. Pay your debts. If you cannot pay them all off with your refund, pay the one that costs you the most. It might be a smaller balance with a sky-high interest rate. Perhaps it’s a bigger balance. I don’t know; just figure it out and pay them off.
Invest It
Why do I even need to tell you this? If you have the money and owe nothing to anyone else, go ahead and take the money straight to your investment manager and get going making your money make money. Nothing says, “Thank you IRS,” quite like a big return on your investment.
Save It
If you can put it away, put it away. Savings are so important and so vital to everyday life. You never know when your savings will come into play. If you lose your job, you experience a natural disaster; anything could happen that could deplete your personal financial accounts and make your savings more advantageous than ever before.
Use it as a Down Payment
Do you need to buy a new car or a home? Why not use this money to make a down payment. Down payments make regular payments smaller. They make life much easier and they make it more likely that you will be approved for the financing you need if you do, indeed, need financing to purchase a home, car or secure another form of financing.
Save for College
Do you have kids? Then save some of this money for college expenses. College is very expensive and it can be a difficult task to secure financing for classes if you can’t afford to apply for loans and scholarships are not an option. Go ahead and make it a point to save something for college for your little ones. They’re going to appreciate that one day.
Create an Emergency Fund
You should have a minimum of $1000 in an emergency fund for emergencies (and no; a new Louis Vuitton bag is not an emergency). This is an account and a fund for things like new tires should you find them necessary. It’s a fund for things like emergency medical care if your deductible or copayment is high. It’s a fund for anything you did not see coming that could potentially have a negative effect on your finances.
Apply it to Retirement
You do want to retire one day; we all do. But if you cannot afford it, it’s not going to happen. The best thing you can do in this case is go ahead and apply your refund to this account. It’s going to max out your retirement savings and make it more likely that you can retire as soon as possible and still actually be able to afford it.
Donate
Everything you donate is tax deductible, which means you will lower your tax liability the following year. So go ahead; give that money away. You can give it away and make money off of it, believe it or not. You might not think that you can, but it’s true. You don’t have to give it all away, but every little bit is going to lower your tax liability for the year and make you just a bit wealthier.
Upgrade Your House
Energy efficient appliances and upgrades are a nice way to increase the value of your home, and that’s something that we can attest to. You can actually take a few tax breaks on some of these items as well. And it never hurts to invest in your home. It makes money for you over time, anyway.
Do Something Fun
Let’s just go there; it’s your money. You earned it and you should be able to do with it what you please. If you have no debt, your retirement accounts are already looking good and your kids’ future college is taken care of, go for it. Go somewhere and do something nice and wonderful and for you. Take a trip. Go somewhere. Buy that jet ski or do whatever it is you like to do that you never take the time to do. Just do it; you will be glad you did. Like I said before, it is your money. You are free to do with it what you please. Have no regrets. Go ahead and make sure that you enjoy yourself.
Photo by Mark Wilson/Getty Images
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