The following post is from Christina of Northern Cheapskate:
I remember seeing those digits at the bottom of my tax return. The dollar signs danced in my eyes as I dreamed of all of the fun things we could do with our income tax refund.
I felt a little twinge of guilt as a I recalled how many financial experts (and even my own mother) say you shouldn’t let Uncle Sam use so much of your money interest-free. If I would have adjusted my tax withholding, I would have had more money in every paycheck, but I probably would have just spent it on things like clothes or eating out.
But what was done was done. The fact that we were getting a large tax refund couldn’t be changed just then. And as much as I wanted to spend it on a bunch of fun things for our family, I realized that this windfall was a blessing. We needed to do something smart with our tax refund. We ended up using that refund to take care of some home improvements and to bolster our emergency fund. But we could have done any number of things.
If you’re expecting a big check from Uncle Sam this year, check out these smart things to do with your tax refund before you blow it:
5 Smart Things to Do with Your Tax Refund
1. Pay down debt. There is no better investment in your future than getting rid of debt. Put your tax refund towards your credit card debt, car loans or student loans. Pay some extra money on your mortgage. By using that extra money to pay down your debt, you’ll save hundreds, if not thousands of dollars in interest. You’ll also save your sanity as you start to break free from debt.
2. Give your emergency fund a boost. You should have enough savings to cover 3 to 6 months living expenses. Unfortunately, most people don’t. When you don’t have an adequate emergency fund, you get stuck in a cycle of credit card debt and living paycheck to paycheck. This cycle can end when you put that refund into savings.
3. Contribute to your retirement fund. Consider putting the money into a Roth IRA or other retirement fund. The money you put in now will continue to make money for you long into the future.
4. Invest in yourself. If you’ve been meaning to go back to school to increase your earning potential, consider using your refund to help pay for that additional training. Invest in continuing education classes for you or extracurricular activities for the kids. Take music lessons or art classes. Take cooking classes. Buy a family membership to your favorite museum or zoo and visit often. Buy that piece of exercise equipment you’ve wanted or join a gym and get in shape. Investing in yourself and your loved ones is a good use or your financial resources.
5. Take care of your home. Use your tax refund to take care of home maintenance projects such as fixing rain gutters, repairing or replacing a roof, or painting your house. Buy more energy efficient appliances or to replace old windows and doors. Use that extra money from your tax refund to make maintenance a priority in your budget.
Remember that your approach to how to spend your tax refund doesn’t have to be all or nothing. You can do some smart things with your tax refund and still have a little fun with your money, too. Moderation is the key. A new gadget, a mini-staycation, or even just a nice dinner out with the family can be great ways to celebrate your tax refund while still making smart money moves for the next year.
Then after you’re done celebrating, you can figure out how to tackle next year’s taxes.
What will you do with your tax refund?
|Christina Brown is the creator of Northern Cheapskate, a blog dedicated to frugal living through coupons, freebies, and money-saving ideas. She lives in the rural north woods of Minnesota where she clips coupons, pinches pennies, and chases her three boys (a 7-year-old and twin 5-year olds) as a stay-at-home mom.