If you’re one of the fortunate people to have overpaid your taxes this year and are expecting a decent sized chunk of cash back – instead of spending it on something you’ll forget you have in a couple weeks, why not make plans to do something better with the money?
People regularly receive “unexpected money” throughout their lifetimes, but because most of us fail to plan for these windfalls, we don’t utilize them effectively. Think about it – if you get a rebate in the mail, what do you do with it? If someone sends you money for your birthday or other celebration, where does it go? Most of us deposit the money into our every bank accounts and the money is quickly absorbed into our spending and when it’s gone – we can’t even pinpoint what the money paid for.
As you’re filing your income taxes, if you discover you’re going to be getting money back – take some time to think about what you will do with that refund. You can use the money toward something that will help your financial future, rather than using it on items and expenses you won’t even remember you paid for in a week much less several years into the future!
Pay off high interest debts: if you’re carrying high interest credit cards or personal loans, it might be worthwhile to use your tax refund to get rid of those debts. Depending on how great your debts are and how much of a refund you’re getting back – if you can pay them off you could then apply the amount you USED to pay in monthly payments to a savings account or other investment and make better use of that money each month.
Save for retirement: if you have an IRA already, deposit the money into your retirement account. If you don’t have an IRA, consider using the money to start one. If you qualify for a tax-deductible IRA, you can make the contribution before April 15th and claim it on your current tax return; or use it toward next year’s tax return as a deduction.
Look into CDs, Money Markets or U.S. Savings Bonds: There are many options for investing the money. Certificate of deposits, money market deposit accounts and U.S. savings bonds are all guaranteed savings vehicles – which means you aren’t at risk for losing your contribution. Let the money grow for awhile and maximize the returns you get on the money.
Whatever you decide to do with your tax refund, make sure you make a conscious decision for the money rather than just depositing it into your checking account. Before you make up your mind what to do with it, chances are it’d be long gone!