With the April 15 tax deadline approaching, you likely have two responses: concern about how much you owe or anticipation over a refund.
I’ve found myself in both situations – writing Uncle Sam a check and having him write me one. The latter is far better.
Let’s say you’re fortunate this year and are getting money back. What do you plan to do with it?
Your impulse (and mine) is to view the refund as found money and have fun with it. If I got a few thousand back (unlikely), I’d be tempted to buy a new set of golf clubs, another mountain bike or a GPS system for my truck.
Do I really need any of those items? Of course not.
The rational side of my brain would say save the money or pay off some bills. And it would be right.
So, to encourage you to be responsible with your tax refund, I’m offering five good uses for the money.
- Pay down credit card balances. Credit card debt is evil. The high interest rates suck hard-earned money that should be going elsewhere.
- Add to your child’s college fund. Now this isn’t a very sexy idea. It’s even less fulfilling than paying off credit card debt because you don’t get any immediate benefit. But you’ll kick yourself later when your child is ready for college if you haven’t saved enough. Act like a responsible parent now and set aside money to offset ever-escalating college tuition.
- Make overdue home improvements. I’m not talking about extravagant purchases, such as building a pool with waterfalls and a hot tub. No, I’m speaking of making foundation repairs or installing energy efficient storm windows or replacing your worn-out air conditioning compressor. The key: Spend money in areas that will save you in the long run or head off costly repairs.
- Put aside money for auto repairs. Any vehicle – large or small, expensive or cheap – eventually needs work. Recently, for instantly, I spent $700 on a new set of truck tires. Ouch! Somehow, I never anticipate having vehicle expenses. But they always occur. Some other examples: Brake pads wear out, the front end needs alignment, or the air conditioner conks out in the middle of summer.
- Invest in a diversified mutual fund. Yes, the stock market can be scary with its wild gyrations. Still, it’s been on the uptick lately and has proven to be the best place to put money long term. Don’t try to be an investment wiz and pick individual stocks you think will rise in value. Even the experts fail at that. By selecting a mutual fund that invests in a variety of stocks, you’re protected from sharp declines in any one stock.
OK, I’ve given you some sound, responsible uses for your tax refund. Avoid the temptation to buy an expensive toy that you’ll later regret. If you’re smart with your tax refund (or any money, for that matter), you’ll avoid financial problems and have greater peace of money. And peace of mind is priceless.
Don’t look at a tax refund as found money. Look at it as money you gave the federal government and are fortunate enough to get back. Use your windfall, even if it’s small, to pay off debts and save for the future.