Consumers that got their hands on tax refund checks this year might not be the least bit worried about missing tax filing deadlines. In fact, one of the main concerns of people who received refunds would be how to use the money they just got in the mail. It is very tempting when you have in your hands windfall profit and you have no plans on how to use them.
There are gadgets that are within reach or that dress waiting at the mall display is now easy to purchase with the amount of refund received. Buying things that you want is now an easy thing to accomplish but is it the right thing to do? Is it a good financial move to use your tax refund check for whatever your heart desires?
IRS.gov shares that with the $191.233 billion paid out in 2015, each recipient received an average of $2,893 per check. That is not something that you would take lightly and an amount that can either help you with your finances or hurt your budget tremendously. But how do you know which actions will lead to better finances?
Where to put that extra money
If you still have that amount sitting in an account undecided how best to use it, here are some ideas you might want to consider. Remember that these are not the only things you can do with your tax refund checks but these are some of the most ideal steps you would want to take.
- Put it towards debt payment. Debt is constant in almost all households in the country and that is one of the primary things that consumers need to take a look at when dealing with extra funds in the budget. Debt may consist of mortgage payments, credit card debt, auto loans or even student debt from higher education. At this point, you need to know how much the minimum payments are for your debt accounts but with the extra money, you can either make additional monthly payments or even principal payments to lower down your debt amount.
- Add to your retirement fund. When you get your tax refund checks, you might want to look at increasing your retirement nest egg because it might be challenging when you rely solely with your social security benefits. Having extra funds could allow you to consider other forms of investment which could form part of your retirement nest egg. The idea is diversity in sources of funds rather than pooling everything in under one basket.
- Consider saving for higher education. It can be yours or your children but at this point you should already know that higher education does not come cheap. The cost of attendance is something you need to seriously factor in before heading off to school. If you are already working, taking up professional studies to further your career can benefit from the unexpected tax refund check you just got. You might also want to start saving for a college fund for your children to help them get on the right track after they graduate and not be bogged down by seemingly insurmountable student loans.
- Increasing your reserve funds. This does not only refer to your emergency fund but should include a rainy day fund as well. These two funds works in harmony to help a consumer address any unexpected financial emergencies. The bigger of the two would be the emergency fund which should be enough cover situations that impacts the income the most. This can be job loss or even some medical emergencies at home. The rainy day fund is meant to cover the smaller expenses that might drain your emergency fund in the process.
- Put some in your travel fund. If you receive your tax refund check, you can put a portion of it to your travel fund if you have one. If you don’t have one then it might be a good time to start. People would be quick to say that travelling is a good teacher and it nurtures the soul and keeps you hungry for life. That is why a lot of consumers put in the time to save up for annual travels and you can too starting with your refund on tax.
- Consider putting some to charity. Another way to make the most out of your tax refund check is to put a portion of it to charity. If you are feeling generous, why not donate everything? According to an article from About.com, any money that you put towards charity is tax-exempt. At least this is true if it follows the provisions of the 501(c)(3) tax-exempt status.
- Invest in your health. Lastly, you can use your check to invest in your health. This does not mean you invest in a health insurance – although that is one of your obvious options. This also means you use the money to help yourself become physically fit. You can buy an exercise equipment that you can use at home while watching TV. You can pay for a gym membership too. Taking care of your health is one of the best ways that you can be financially wise. After all, health-related expenses are very expensive and prevention is always better than cure.
Ways to make saving easier
When you find yourself with an extra amount of money, it is a great opportunity for you to save. While spending is a lot easier than saving, the rewards of putting aside money is higher. Fortunately, there are ways to help you make saving easier. You do not have to fret because saving is even possible even with low income families.
- Automate the process. Investopedia.com explains that automatic transfer simply means funneling funds from one account to another electronically. If your tax refund check was automatically credited to your account, you can automate the process and transfer the amount to your savings account. reserve funds or even your retirement fund. You can also do this with your monthly pay where you designate a specific day in a month where the funds are automatically transferred before you get to use them.
- Forget about any increases in pay. If you get a pay raise in the office, hold off the temptation to increase your lifestyle and if possible , forget about the increase. Automatically transfer that amount to a savings account and continue living off on your current household budget. This can help you save for your retirement much faster or even set aside a college fund for your kids in time for their college education.
- Think of your savings as a cost account. When you make a payment on your cable or even your credit card bill, you will never see that money again. You can treat your savings account the same way where after you put in money, you try to forget about it. This helps prevent dipping into the account for unnecessary expenses like shopping for clothes you do not need.
When you get your tax refund, you need to make sure that you make the most out of it and use it to strengthen your finances. Do not just waste it by painting the town red and coming home with multiple shopping bags full of clothes and shoes. You need to be wise about how you use the money because it can impact how your future finances will be.