Ten Things to Do With a Tax Refund

1976 Little Construction VehiclesAre you getting a tax refund?  You’re in good company.  80% of us will get one.

Getting a chunk of money from a tax refund is fun, but if you’re not careful it can be swallowed up by miscellaneous spending and be gone before you know it. Like any time a windfall comes your way, the question becomes what will you do with the money? Think about it ahead of time and resolve to use it purposefully.

Here are some ideas. Depending on the size of your refund you may be able to use just one, or split it up to use in a few areas.

Whatever you choose to do, let it be a choice and not simply “what happens.”


1. Pay off a debt

Do you have a credit card balance you could pay off? Or owe money to your sister? Use part or all of your refund for it. If you have a few debts outstanding and your refund is enough to pay one of two off, that will free up more cash in monthly payments to tackle the rest. Interest saved is interest earned.


2. Beef up an emergency fund

Most of us should have at least six months’ of living expenses at the ready. If you’re short in that department, use some of the refund to boost it. Or, if you have none, take this opportunity to get started and commit to add to it regularly. Don’t let the enormity of going from zero to six months’ expenses stand in your way. Start small and keep going.


3. Seed a bill paying account

Raise your hand if you’ve ever cringed when you saw the oil truck pull up in your driveway because you knew that meant coming up with a big chunk of change. Wouldn’t it be nice to have that money set aside in an account so you could write that check without hesitation? The tough part about a bill paying account, where each month you save one-twelfth of your larger non-monthly bills (like heating oil, car insurance and Christmas gifts for instance), is that some of those bills come due before you have had a whole year to save up for them. Now’s your chance to seed that account with enough money to fund the bills coming up so that your monthly savings going forward will cover them.


4. Teach a child to give

I don’t know if kids still ring doorbells and run away, but here’s a chance to show a child the fun way to do it. You don’t have to look far to find someone who could use a bag of groceries or even a bunch of flowers as a pick me up. Grab a kid — your child, a grandchild, a neighbor’s child — and make a secret delivery. Let them experience the joy of giving anonymously, knowing they’ve been a blessing to someone without needing any credit.Coeur d'artichaut


5. Have some fun

Being responsible with money is of course a good thing, but so is enjoying life a little. So allocate some of the refund for a dinner out or some other treat you may not regularly enjoy. Just don’t blow it all.


6. Make it go away

If you find yourself with a tight month-to-month cash flow, why get a refund at all? Adjust your withholdings at work so you can have more money in your paycheck. A $5,000 refund at tax time can easily give you a few hundred dollars more in your budget each month to ease your budget, with a small refund still to come. And even if cash flow isn’t tight, getting a smaller refund means you have access to your money all year and not the government.


7. Invest in your future

Is there a class you can take that will improve your job skills? Perhaps a management training class would help you be better at your job but your employer is reluctant to foot the bill. This could be an opportunity to invest in yourself for better performance or a future job move. Or perhaps this is a chance to train for a new field, or even purchase equipment to get started in freelance work that could become your own business.


8. Invest for the future

After you’ve prepared your return but before you file, see if reinvesting some of that expected refund into an IRA will yield even more tax savings. Or, use the opportunity to contribute to a Roth if you are eligible and make that money tax free forever. For taxpayers in the right situation, a retirement contribution can get you an additional tax credit, sweetening the pot. Now might also be a good time to start or add to a 529 college savings account for your children or grandchildren.


9. Invest in memories

Children don’t often remember the gifts they received or how cool their TV was, but they do remember the experiences shared with their families. Rather than buying stuff, use that money to do something memorable instead. It doesn’t have to be big; it could be a day of ice skating or a road trip to visit an interesting town. Even reluctant teenagers will remember these things later, regardless of how disinterested they appear now.


10. Invest in another’s future

Teashop owner in rural MPIt doesn’t take much to make a huge difference in someone’s life across the globe. For an amount as small as $10, you can be part of a loan to a Third World entrepreneur and give them the gift of a better life. Opportunity International is one such organization that provides microfinance loans, savings, insurance and training to over four million people working their way out of poverty in the developing world. You choose an entrepreneur to support and your funds are pooled with others to fund the requested loan in full. You can also buy gift cards so others can choose, or start a fundraiser within your network to fully fund a project. Visit them at www.opportunity.org for more information.

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