No one finds the tax season any thrilling, except maybe the accountants. A refund check is definitely a good thing that can come from the process though. All of a sudden, you now remember the things that you have been wishing for but couldn’t afford. The temptation to impulsively spend this newly found fortune poses itself, but it’s wise to look at other smart and better alternatives before you consume that check unwisely.
Here are a few dos of spending your tax refunds that you can consider
Do save your refund:
You can contribute towards your savings or open an emergency fund if you didn’t have one. This way, you will be able to cater for any unexpected medical expenses or other emergencies should they arise, and avoid using your credit cards for such times.
Do invest your refund:
Another great opportunity is to open an IRA account where you can put your retirement savings. A financial adviser will best help you decide what account between a traditional IRA and a Roth IRA is best for you.
Suggested Article: Using Tax Refunds for your IRAs and Bonds
Do improve your appliances:
If some of your home appliances have not been running well, if at all, the refund can be used towards their improvement and even upgrading. The upgrading could include some modern technologies that are aimed at being cost effective in terms of energy consumption, thereby saving you even more on running expenses.
Do clear or reduce your loans and credit cards:
If you have some unpaid loans and credit cards that are amassing high interests, it is a good time to tackle them using that refund. Paying down your debts will leave you with more money in your pocket in the long run, from the savings you make to the interests you avoid.
Do give to charity:
Sharing your wealth with others is a good thing to do, and now that you have this ‘wealth’ of a refund, it will be a good time to donate part of it to charity. The donation you make towards charity is tax deductible so you will be able to help others while saving on next years’ money that you will pay on taxes.
Do consider insuring your home:
If you had not been able to insure your home earlier against natural disasters, you can use the refund and have that taken care of. Such a cover will save you big time in the future, should disaster strike and your home becomes affected.
The don’ts of spending your tax refunds to consider are:
Don’t ‘count your refund before it hatches:
Do not make the mistake of assuming that since the check is on its way, you can start spending it. Avoid making credit card purchases in the hope that you will pay yourself back when the check comes. These purchases may see you spend more than you should have, and unwisely for that matter.
Don’t buy things for your home that you can live without:
A new entertainment system in your home will be excellent, but do you think it is worth buying just because you got a refund? It will be prudent to practice some self control and avoid spending your refund on something that you just don’t need.
Don’t get into debts on behalf of that refund:
Buying a new car or house is a good idea on how you can use your refund, but only if full payment is possible. If the refund can only contribute a down payment, doing that will not be the best decision since it is going to plunge you into new debts.
Don’t loan the refund to friends:
The shiny refund check may put you in a generous mood towards your friends who have been asking for a loan from you. Lending money out to your friends may be a good thing, but only if you can afford to lose that cash because that is often the end result for such loans.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.