Have you done your taxes yet? If not, you still have a few weeks left. If you’ve already filed, then you’re ahead of most. Hopefully you’re getting a refund. That’s always a welcomed bonus! We are always surprised at my house when we get a refund…some years we do and other years we have to pay. I’ve never figured out the difference so it’s always a surprise when we get a refund.
Everyone seems to have plans for their refund…a vacation, home repair, new car. What’s your plan? Before you spend your refund, try to think through all your options, even the ones that aren’t especially fun or glamorous. Here are two tips from Dr. Joyce Cavanagh, Associate Professor and Extension Economics Specialist with Texas A&M AgriLife Extension Service:
- Plan ahead before spending your refund. Without a plan, you may spend the money on the first thing that comes to mind and then realize later that something else was more important. Involve family members to help identify all the possibilities and then think about which ones are the most important.
- Devote a portion of your refund to build long-term financial security. This may fall under the “no fun” or “not glamorous” category right now. But think about it. Even small amounts add up over time. Adding a few hundred dollars to a retirement account, such as an IRA, can make a difference over a period of decades. Continue to add to your retirement account by making a monthly contribution.
Here are a few more suggestions for using your tax refund:
*Pay off bills. This could be monthly bills if you’ve fallen behind or credit card debt. If you have more than one credit card, pay off the one with the highest interest rate first.
*Save for needs in the coming year. Do you have an emergency fund? Every family has emergencies such as car repairs or medical bills. In the ultimate emergency (loss of income), an emergency fund can help keep you afloat until you find another job.
*What about those expenses that come once a year such as car or home insurance? These can cause huge problems for families so you may want to use your tax refund to start a special savings fund.
*A special purchase may be on your list…new refrigerator, sofa or other purchase are valuable also. Some may be essential while others simply add enjoyment to life. Are you fulfilling a want or a need?
*What about investing in yourself? Take a course that will improve your job skills if you’re looking for a way to get a better job and increase your salary.
Your best bet may be to prioritize your list of options. Financial experts recommend that you first save for long-term goals, then pay off a debt, plan for the upcoming year and invest in yourself. If there’s anything left, you can use it to make your day-to-day life better.
If your refund is more than $1000, consider lowering your withholding so you’ll receive more take-home pay each payday. The additional dollars in your paycheck can be used to meet monthly expenses and could be the difference between making ends meet or not. To change your withholding, file a new W-4 with your employer.
For most of us, our list of how to spend a tax refund is pretty long. At our house, we list out all options and then prioritize. We choose something that we need to do along with something that’s fun. And then we change our W-4s. It’s not a perfect plan but it’s one that works for us.
So, if you’re getting a refund, what’s your plan to spend it?
Carrie T. Brazeal is the County Extension Agent for Family and Consumer Sciences for Texas a&M AgriLife Extension Service. She may be reached at firstname.lastname@example.org or at 972.424.1460, Ext.4233.