Last year, the IRS reported that nearly 112 million refunds were issued, with an average refund of $2,869. That’s not pocket change, and for some, that’s bigger than a paycheck. So, what do you do with a tax refund? Do you spend it? Hold tight — that new TV or spontaneous vacation might be tempting, but there are smarter ways to invest your tax return and therefore, put you one step closer to financial security.
How to Spend Your Tax Return Wisely
- Put a Dent in Your Debt
Eliminate that credit card balance once and for all with your tax refund. If you don’t have enough money to cover all your outstanding balances, start with the one that has the highest interest rate and move down the rate ladder. By “snowballing” your balances, you’re reducing the amount you have to pay in interest, which can be hefty. Isn’t peace of mind worth more than a one-time purchase?
- Pay Down Your Mortgage
Use your tax return money to make an extra principal payment on your mortgage. Adding just one extra payment a year can knock years off of your payment plan. Want to see how? Online calculators (such as this one) can help you calculate how many months or years you could shave off of your mortgage. Seeing just how much you could save can really help put a windfall like your tax refund check into perspective.
- Fund Your Child’s Education
A tax return is a great opportunity to start or increase your child’s or grandchild’s college savings fund. It may not seem like much now, but after a few years, you could have a hefty balance to help with the ever-rising costs of higher education. Farm Bureau has some college funding options that can help you maximize your college savings!
- Donate to Your Favorite Charity
Pay it forward by donating your tax return to your favorite charity. Not only are you able to support a cause you believe in, but you could also qualify for an extra income tax deduction for the following year.
- Invest in Your Retirement
While saving any extra money that comes your way is smart, sticking it in an envelope inside your sock drawer isn’t the best way to do it. While you have the money in a (relatively) safe place, it isn’t doing anything else for you — like compounding interest and making you more money. One of the best ways to spend your tax return is by investing it in your retirement account. Talk with a financial advisor to find out what options you have for saving your money in a fund or account that will accrue interest. Many retirement savings fund options exist, including 401(k) funds, IRAs, mutual funds, annuities and more.
- Treat Yourself
It’s okay to indulge in a guilty pleasure every now and then, but don’t spend your tax return on impulse buys. A good way to figure out how to spend your tax return money intelligently is to write down all the things you want to save for and prioritize them by importance. This can range from short-term (like a new computer) to long-term things (like that dream vacation). If your tax refund check gives you the ability to budget for purchases, then why not? Just be sure to budget wisely; you don’t want to use it as an excuse to let your spending get out of hand.
- Diversify Your Tax Return
Still not sure how to spend your tax return? Use your refund to work on several financial goals. By looking at the big picture and greater good of your financial future, you may discover options for stretching those extra dollars. Consider splitting your tax return between some of the following:
Important Tax Dates to Put on Your Calendar
Wednesday, April 15 — This is the deadline to submit individual tax returns for the year 2019 or to request an extension, which provides an additional six months to file your return. However, your tax payment is still due by April 15 and can be submitted with the extension form.
Monday, June 15 — U.S. citizens living abroad must file individual tax returns and pay any tax due by this deadline, or file a four-month extension.
Thursday, Oct. 15 — If you filed for an extension, this is the final deadline to file your individual tax return for 2019. This also applies to U.S. citizens living abroad who filed an extension.
Need Help Creating a Plan?
If you would like some ideas on how to create a plan to help you meet your financial goals, contact your Farm Bureau agent or advisor today for more information.