How Should I Use My Tax Return?
Q: I’m getting a tax refund that’s more than I expected this year. How can I use it responsibly?
A: Whenever you receive an unexpected windfall, it’s always smart to be proactive about how you’ll spend it instead of letting it just blow through your checking account.
Below, we’ve listed some do’s and don’ts for you to consider.
DO: PAY DOWN DEBT
Consider earmarking 20% or more of your windfall toward paying down high-interest debt you may be carrying. You’ll save a ton on interest and you’ll be finished with this debt sooner than you’d planned.
DON’T: LEND OUT YOUR REFUND MONEY
Lending all your refund money is not the best idea. You might not see that money for a while. And, if you do, it’ll likely be in small repayments instead of the large chunk of cash you have now. That severely limits what you can do with it.
DO: START SAVING OR INVESTING
Take $1,000 out of your refund and use it to start a savings account. You can set up an automatic transfer from your checking account each month to help it grow, even if you can only afford as little as $10. Learn more about Truity’s Name It Save It account. This savings account has a competitive rate above the national average.
You can also use this opportunity to start investing.
For example, 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’ time.
That’s making your refund work for you!
DON’T: INVEST IN A LOW-INTEREST ACCOUNT
Don’t be lazy about saving your money. Keeping all that cash in a low-interest savings account or an ordinary checking account with little to no interest will dramatically decrease its growing power. If you need help deciding where to invest or save your refund, call or stop by Truity Credit Union where a member service representative is happy to help.
DO: INVEST IN YOURSELF
Advance your career and increase your earning power by using your tax refund to pay for a work-related conference, additional training in your field, or for learning an entirely new skill.
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.
DO: REWARD YOURSELF
It’s OK to celebrate with one or two bigger purchases you’ve been eyeing throughout the year.
DON’T: RECEIVE YOUR REFUND ON A GIFT CARD
Many tax software programs offer the opportunity to get refunds via gift card. If you’re offered this choice, opt out. You always stand the chance of losing the card, and it limits the ways you can spend your refund money.
DO: DONATE TO CHARITABLE CAUSES
The bonus cash in your pocket gives you the opportunity to give back to the community in ways you might not be able to afford throughout the year.