Be Money Wise at Tax Time: 5 Ways to Spend Your Tax Refund Wisely

Tax season is slowly approaching and after the gifting holidays, you might be tempted to spend your entire refund on something you don’t really need like a new wardrobe, the wide-screen TV you’ve been wanting, golf clubs, or another non-necessity. It’s okay to spend a little for yourself, but being responsible about how you spend your refund now will be a huge help in the months to come. And don’t forget to use the 30-40-30 plan to pay for your past, present, and future.

If you haven’t always spent your refund wisely in past years, here are some tips to get you thinking wisely about how to spend your refund in 2014: 

1.     Use 30% of your refund to pay down debt. Using your refund to pay off high-interest debt, like credit cards, is a responsible way to utilize the extra money your refund check will bring. Paying off your debt could save you hundreds of dollars in interest that you would pay down the line. This is a great way to maximize your refund dollars.

2.     Put 30% of your refund in an emergency savings account. From car maintenance and home improvements to medical emergencies, an inconvenient event is bound to come up in 2014, and you will want to be financially prepared. Most car repairs, home improvements, and medical procedures cost at least $250, even with insurance. Military Saves recommends saving at least $500 for emergencies, so consider using part of your refund to open or add to your emergency savings account.

3.     Be strategic. Create a monthly spending plan and write down how you will spend your tax refund throughout the year. If you divide the amount of money in your tax refund over 12 months, it won’t be as easy to splurge or spend your refund too quickly. Think of the new clothes you need for your growing toddler or teen, the braces your child may need, or paying for summer camp. Even if you allow yourself a spa massage every month, think of how much easier it would be to pay for it if you put money away for it now. Being strategic about how you will spend your money will make it easier to do it in the future.

4.     Start a ‘special occasion’ or holiday fund. How many times has Valentine’s Day, your anniversary, or your parent or child’s birthday snuck up on you and you realize too late that you don’t have the finances you need to pay for gifts? Special occasions are meant to be celebratory, so avoid bringing stress to them by taking a chunk of your tax refund and setting it aside to fund future special events.

5.     Consider giving back. When you are working to make ends meet, the thought of putting money toward anything other than your own bills or savings account might be difficult. But think of the lesson it will teach your kids, and the feeling it will give you to donate $5-10 a month to a local food pantry or shelter. Not only will you will be helping your community, you will give yourself a tax write-off for the next year. 

Making the wise decision to strategically plan how you will spend your tax refund now will save you from potential financial headaches that can come later. Taking steps now before the tax season arrives will set in motion smart financial practices that will not only help you at tax season, but throughout the year. Learn more about saving at tax time

Tip of the Day

  • Written by Guest Blogger | September 30, 2014

    Develop a long-term plan and foundation for financial readiness by establishing a spending plan. More tips at: http://ow.ly/sCvQQ

Saver Stories View all »

Involving Kids in Family Finances

Written by | April 19, 2019

 

One of the best lessons we can share with our kids is about money. By middle school, kids should have a good understanding of how money works as well as the importance of saving.

Read more...

Setting a Goal Leads to Success

Written by Super User | May 24, 2019

Growing up, Marisa’s dad had always talked about saving first, but she said she didn’t really internalize it until much later. “I was drifting along with no plan, carrying a little bit of revolving debt, saving some money here and there, but without a real plan for it.”

Read more...

When You Start Small, Saving is Easy

Written by Lila Quintiliani | August 12, 2019

When Attiyya first got married, she and her Marine husband had just graduated from college and were focused on paying off student loan debt. They had both attended private schools and had sizeable loans. Then three months after the wedding, the couple found out they were pregnant with their first child.

The first year of their marriage, says Attiyya, was a balancing act between paying down debt and saving for the future.

Read more...