April 15, 2014 Leave a comment
Tax Day. Two of the most dreaded words in the English language. So ominous that even Benjamin Franklin famously remarked in a letter to Jean-Baptiste Leroy that “In this world nothing can be said to be certain, except death and taxes.” Tax Day in the United States has long been derided and viewed as something awful, and for good reason. It’s tedious going through all of your receipts. It’s frustrating trying to navigate the labyrinthine tax code. The fear of an IRS audit looms large in today’s society. And let’s not even talk about the feeling you get when you have to write that check to Uncle Sam. *Ugh*
Despite all of the negative connotations Tax Day has earned, this is not necessarily the case for everyone. According to IRS statistics, it would seem that in 2012, around 70% of taxpayers received a refund. If you are the lucky recipient of such a windfall then the bigger question is: what to do with it? It’s no secret that retailers want that money, and will offers sales and deals to get you to part with it. While the urge to splurge on a big-ticket item like a new TV, smartphone, tablet, or some other toy or gadget is quite tough to resist, let’s look at a few things that you could do with your refund instead…
- Set Up An Emergency Fund. This is perhaps the most important, and easiest, thing you can do with your refund. A good rule of thumb for an emergency fund is to save approximately three months worth of living expenses. So tally up all of your bills for a three-month period and you’ll have a great starting point for your emergency fund. The critical thing to remember about an emergency fund is this: only use it for emergencies! Don’t use the money for something frivolous. Only use it for things like repairing your car after an accident, paying medical bills after an injury, or paying bills if you find yourself between jobs.
- Pay Down Debt. After you have an emergency fund established paying off debt is the best thing you can do. Carrying a lot of debt (student loans, car loans, credit card etc.) is a big drag financially and emotionally. So this tip is to simply use your refund to pay off some of that debt. Choose one of your higher-interest debts (since that interest is only adding to your debt) and put your refund towards the balance. You will save money in the long run by paying less in fees and interest, while reducing the amount of debt you owe.
- Make Home Improvements. Take a look around your home. Do you need any repairs? Perhaps a new roof? Maybe you could use some new appliances that are more energy-efficient? Whatever the case may be, putting money back into your home is a good investment. You can increase your property value while increasing your comfort level all at once.
- Set Up A College Fund. Invest in your children’s future by using your refund to establish a college fund for your kids.
- Donate To Charities. Giving to charities frequently is hard if you’re on a budget or carrying a lot of debt, so your refund can be a chance to change that. Choose a cause meaningful to you and your family and make a generous donation. Remember you can claim the donation on your taxes next year.
- Start Your Business. If you’ve always wanted to be your own boss then put your refund towards making that happen. If you already run your own business then reinvest your refund in your business to help it grow, increasing your income for years to come.
This list is just a primer, there are many sensible things you can do with your refund. Always remember to take a moment to look at your financial situation and determine your own best course of action.
Are you getting a refund this year? Let us know what you’d like to do with it in the comments below…