It’s tax season again, so tax refunds are flowing and the urge to spend this money is rising. It can be easy to see a tax refund as a cash windfall that’s free to spend on things like a brand new wardrobe or expensive electronics. However, wasting the money from a tax refund is one of the worst things a taxpayer can do.
The fact is that money received from a tax refund is not free money and you shouldn’t think of it as such. You should plan to make sure that any money received from your refund is used in the best and most productive way. Although things, shopping binges and online auctions are fun, there’s no real long-term value. Once the money is gone, it’s gone.
Taxpayers should take the time to consider how to make tax refund money do the most good for the longest time. Tax refunds shouldn’t be treated as the start of a race, where the fastest to a zero balance wins. Instead, tax refunds should be considered boosts for long term investments or a way to get a jump on bills and other financial responsibilities.
With some careful consideration of your financial situation and responsibilities, some straightforward tips, and a little bit of common sense thinking, you will find that you can turn your tax refund into something even greater.
Save It For A Rainy Day
Money Talk News offers a few common basic suggestions for getting the most bang from your tax refund buck.
First, never under estimate the importance of having emergency money available for life issues, such as home repairs or unexpected money problems. Your tax refund offers you a great opportunity to put some money into savings. However, if you already have some savings put away, there are a few other options you could consider.
- Save on insurance by paying ahead;
- Start a side business; or
- Save for retirement or college
Use Money to Save — or Make — Money
Turbo Tax provides a list of smart tax refund ideas for getting the best financial use from a yearly tax refund. Consider options such as renovating a home for energy efficiency. Not only can that earn you future tax credits, but you can also save big on your energy bill later. If you have an investment portfolio, you can also choose to review investment gains and loans, and sell any money losers to offset any capital gains. There are many ways you can invest your tax return money.
- Make charitable contributions;
- Fund college expenses for a child or grandchild; or
- Establish a Health Savings Account (HSA)
Lower Future Debts
News channels WKYC and WSAW have great ideas for smart things to do with a tax refund. Think about taking care of some important things now so you don’t have to worry about them later. For example, scheduling preventative maintenance on your car is a smart move that can pay off in gas savings, fewer trips to the repair shop, and a longer-lasting vehicle. There are a number of ways you can use your refund to lower future debts.
- Get a home energy audit;
- Pay off credit card debt; or
- Make extra mortgage payments.
Invest in Long-Term Financial Stability
MSN offers a couple traditional common sense tax refund spending ideas that have consistently proven year after year to be great investment and financial choices, starting with savings bonds. They are a great long-term investment that can pay off well, and they’re among the safest and most dependable investments you can make. Opening an individual retirement account (IRA), if you don’t have one already, is another excellent idea.
Keep in mind, in both of these examples you are using your refund money to take care of your long-term financial needs — quite a big difference than spending all of your refund on little luxuries right now. That’s always a smart way to approach your finances.
Waste Not — Want Not
Responsible investing is the key to using tax refund money in the most effective way possible. The best thing you can do is to begin planning ways to get the most from your refund before it ever arrives. Research investment ideas or get creative with financial strategies. Do with the money whatever makes the most financial sense — just don’t waste it.