Last year, the IRS reported that 111 million refunds were issued, with an average refund of $2,860. That’s not pocket change, and for some, that’s bigger than a paycheck. So what do you do when you get that tax refund? Do you spend it? Hold tight. That new TV or spontaneous vacation you have been wanting might be tempting, but there are smarter ways to invest your money and therefore, put you one step closer to financial security.
Put a Dent in Your Debt
Eliminate that credit card balance once and for all with your tax refund. If you don’t have enough money to cover all your outstanding balances, start with the one that has the highest interest rate and move down the rate ladder. By “snowballing” your balances, you’re reducing the amount you have to pay in interest, which can be hefty. Isn’t peace of mind worth more than a one-time purchase?
Pay Down Your Mortgage
Get one step closer to financial security by using your tax return money to make an extra principal payment on your mortgage. Adding just one extra payment a year can knock years off of your payment plan. Want to see how? Online calculators (such as this one) can help you calculate how many months or years you could shave off of your mortgage. Seeing your savings in action can really help put a windfall like your refund check into perspective.
Fund Your Child’s Education
A tax return is a great opportunity to start or increase your child’s or grandchild’s college savings fund. It may not seem like much now, but after a few years, you could have a hefty balance to help with the ever-rising costs of higher education. Farm Bureau Financial Services has some options that can help you maximize your college savings!
Donate to Your Favorite Charity
Pay it forward by donating your tax return money to your favorite charity. Not only are you able to support a cause you believe in, but you could also qualify for an extra income tax deduction for the following year.
It’s okay to indulge in a guilty pleasure every now and then. A good way to figure out how to spend your tax return money intelligently is to write down all the things you want to save for and prioritize them by importance. This can range from short-term (remember those sunglasses?) to long-term things (like that dream vacation you’ve been wanting to take). If your tax refund check gives you the ability to budget for purchases, then why not? Just be sure to budget wisely; you don’t want to use this as an excuse to let your spending get out of hand.
Important Tax Dates to Put on Your Calendar.
Tuesday, April 18 – This is the deadline to submit individual tax returns for the year 2016 or to request an automatic extension, which provides an additional six months to file your return. However, your tax payment is still due by April 18 and can be submitted with the extension form.
Thursday, June 15 – U.S. citizens living abroad must file individual tax returns and pay any tax due by this deadline, or file a four-month extension.
Monday, October 16 – if you filed for an extension, this is the final deadline to file your individual tax return for 2016. This also applies to U.S. citizens living abroad who filed an extension.
Be One Step Closer to Financial Security
As tempting as it might be to spend your refund check, take a moment to think it through first. It all comes down to planning ahead; impulsive purchases may provide satisfaction, but that feeling is bound to be temporary. A refund check can be a great thing, but only if you use it wisely. By doing something thoughtful with that windfall, you can set the stage for greater financial stability down the road. Now that’s a bonus!