Smart Ways to Spend Your Tax Return
What is the reward for painstakingly finishing and submitting taxes? The refund! That is if your getting one this year. If you are, big or small, receiving a tax refund is exciting and many people plan well in advance how to spend that money. Some choose to pay off debt, others choose to put it towards a well-deserved vacation, nice dinner or future Christmas gifts. All of these choices can make sense but before you decide what’s best for you, experts recommend there should put careful thought and wisdom going into the decision.
To make the best decision, it helps to know exactly why you are getting a refund first. According to Turbotax.com, a tax refund for most people means that you overpaid your taxes throughout the year. This happens for a few reasons: One being that your employer withheld too much tax out of your pay-checks. That isn’t their fault, it just means that if you want more money in your pay-checks each month, you can update your w-4 to withhold less tax. So instead of getting a big refund, you will have your money right away in each paycheck.
Understanding why you get a tax refund is important, because you could choose to have more money in each paycheck and then save or invest that money right away… this way it starts building interest instead of just sitting with the government for a year. If you like that big refund all at once, you will get a later start, but you can still invest or save the money. No matter how you do it, investing and saving is always a great way to use money and build wealth.
Another great way to use your tax refund is to pay off debt, whether that be a mortgage, auto loan or credit card debt. More than 50 percent of Americans hold a balance on a credit card according to Bankrate.com, and the pandemic has caused those balances to rise. While debt/ credit cards can be used to build credit scores and get different perks, many agree that it's painful making those monthly payments. Using your refund to pay off any type of debt would not only free up additional money each month, but would also relieve the stress debt can cause.
There are other, and some would say “more trivial” ways to spend your refund like going on a vacation. However, depending on your circumstances, it may be a great option. If you are already debt free and are actively investing and saving, go on that vacation! Many people work hard throughout the year, and taking a well needed break may be what you and your family need. Not only that, it will build relationships and create lasting memories, which are important in the long run.
Other ways to spend your refund include purchasing some type of material item like a new TV, laptop, jewelry, Dyson hair dryer or the latest and greatest thing you want… the list could go on. While it is tempting, buying these items with your refund is not the best way to utilize this money. For example, if instead of buying one of those items, you paid off credit card debt or a car loan, you could free up $300 a month. Then, with a little saving and patience, you could buy the Dyson hair dryer in two months… and also have a $300 surplus a month to buy something else in the future.
If you choose to take the route of saving your money to earn interest or purchase a item later on, be sure to check out our special savings account – the Savers Club. This account offers higher-than-usual interest rates and only allows withdrawals once per year to keep you from spending the money on a whim.
There are so many ways to utilize the tax refunds - some better than others. We hope that with these tips, you can make the best choices for you and your family with how you spend yours.