Smart Ways to Use Your Tax Return
April 12, 2019
When you get your tax return you may be tempted to go splurge and buy something you don’t necessarily need. Maybe there is a vacation you have wanted to take, or you’ve been dying to get the latest iPhone. These are fun extras in life that can be easy to talk yourself into purchasing when you feel you have extra cash in your pocket. If these are the kind of thoughts you have been having, you may consider some other ways you can use your tax return. While they may feel less rewarding in the moment, as time goes on these are things you will thank yourself for doing.
When you receive an unexpected payout, whether it’s from a tax refund, work bonus or cash gift, it’s always a good idea to be proactive about how you spend it instead of letting it just pass through your checking account.
Below, we’ve listed some dos and don’ts for you to consider.
DO: Pay down debt
You probably don’t want to see your entire refund go straight to your credit card bill, but you don’t have to take the all-or-nothing approach. Consider allocating 20% of your extra funds toward paying down high-interest debt you may be carrying. You can adjust this number as you see fit, but you’ll be doing yourself a favor by paying off a large chunk at once. You’ll have the potential to save a ton on interest and you’ll be finished with this debt sooner than expected.
DON’T: Blow it all on impulse buys
Don’t spend your entire refund without planning or you’ll be setting yourself up for disappointment later. Have a plan for where your money will go and save yourself from surprises!
DO: Start saving or investing
If you’ve always been waiting until you have a substantial amount of cash in hand to start a savings account or an emergency fund, you’ve just run out of excuses! Take $1,000 out of your refund and use it to start a savings account. You can also set up an automatic transfer to take money out of your checking account each month to help it grow. Even if you can only afford as little as $10 per month, the head-start you’re getting now, along with the small monthly contributions, will add up rather quickly.
If you’re feeling super-responsible and forward-thinking, use this opportunity to start investing. The rewards will greatly outweigh any qualms you might feel about not spending this money. Say you receive an annual refund of $2,800 and invest this money at 6% interest. If you continue investing this amount each year, you’ll find yourself with approximately $250,727 in 30 years.
DON’T: Invest in a low-interest account
If you decide to sock away some or most of your refund money, don’t be lazy about it. Keeping all of that cash in a low-interest savings account or an ordinary checking account with little to no interest at all will dramatically decrease its growing potential. If you’re not sure where to invest or save your refund, call, click or stop by Greater Iowa Credit Union where a member service representative is happy to help. We offer a checking account called GreaterCheckingTM that pays a high rate of dividends and makes for a great place to grow the funds you receive from your tax return!
DO: Reward yourself
While you don’t want to blow it all, it’s OK to celebrate on one or two purchases you’ve been eyeing throughout the year. Now’s the time to splurge on that pair of shoes, treat yourself to a night out at an expensive new restaurant in town or grab a few extra fancy coffee drinks on your way into work.
DON’T: Receive your refund on a gift card
Gone are the days when Uncle Sam licked a stamp for every refund he sends. Today, you can choose to get your tax refund deposited directly into your checking account, and many tax software programs even offer you the opportunity to get the refund via gift card. While direct deposit is fine, if you’re offered your refund on a gift card, opt out. You always stand the chance of losing the card. A gift card will also limit the ways you can spend your refund money.
DO: Donate to charitable causes
For many people living paycheck-to-paycheck, donating to charity can take a back seat on their list of priorities. This might be a great time to break that habit. The bonus cash in your pocket gives you the opportunity to give back to your community in ways you might not be able to afford throughout the year. Plus, it gives you a head start on potential deductions for next year if you plan to itemize.
Whatever ways you choose to spend your refund, consider all of your options carefully before making your decision and you won’t have any regrets! At Greater Iowa we’re always happy to help you make smart financial choices to achieve your goals!