While it is tax time and some people are enjoying the big windfall….this is a time to be VERY smart with your money.
First if you had to pay make sure you reevaluate what you have claimed as your deductions on your paychecks. Sometimes claiming less than what you would on your taxes means you will have to pay less at the end of the year. While this will make your paychecks smaller it WILL keep you from having to come up with large sums of money all at once.
Secondly, if you are due a HUGE refund that does not have anything to do with Earned Income Credit then I would suggest that you also reevaluate what deductions you have claimed on your paycheck so you can keep more of your money each week. Why should you give the government a tax free loan?
Finally…be SMART with what you use your refund on:
Everyone has car insurance. Check around for the best rate and compare who will give you the best rate if you pay in full for the year or even just 6 months. I pay mine every 6 months and it gives me a savings of a couple hundred dollars.
Think about your vehicles. Do you need tires? How long has it been since you had a tune-up? Do these things NOW while you have the money. It is better to get it done now than to have car troubles later on in the year when you do not have it.
What are your recurring bills that you know are there? Do you pay for a security system or a gym membership? Call them and see if you pay out the balance of the contract all at once if they would give you a couple months free or reduce the price.
If you have credit cards, loans or a mortgage then I recommend putting the tax refund on them. Paying extra will just help reduce your principal balance and eventually lead to less interest paid out over time.
Do you have an emergency fund? If not then get one. If you do, does it have enough money for you to live on for several months? If not then increase the balance by adding in some money from your tax refund.
Next season. Sometimes I take the money and buy items for next season. I recently purchase nice jackets for all of my children for next winter. It is nice to know that is one less thing I need to worry about. I do this every season but I have found out that my children need more winter items than any other season and they normally cost more than the other seasons.
Appliances, are your appliances, hot water heater etc in need of replacing? If so then do it. It is better to do it now while you have the money than to find out you need to replace something expensive later on.
Utilities. I like to pay ahead 2 months on my utilities when I get extra money. Then (gosh forbid) I ever get ill, lose my job or just plain forget I do not need to worry about my utilities.
I understand that it is fun to have the money and buy new items that you really do not NEED. However, think how you can make your refund work for you and you can have more money in your pocket all year and be able to enjoy your bounty better than dropping it all on the newest electronics.
Please note that I am not an accountant or even a financial planner; however, I think these are common sense things to do.
What are your ideas on how to make your tax refund work for you?