Are you getting a tax refund this year? I so – yay! Take a moment to consider some options before you make any final decisions.
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As Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” Whether we like them or not (and who actually likes them?), taxes are a fact of life.
Tax time can be incredibly stressful. Since our taxes are fairly simple, we typically file them ourselves. It has worked well for quite a few years now, but there’s still something about it that makes me nervous. As thorough as I am, there’s still part of me that fears the IRS will come and lock me up over an accidental mistake. We’ve purchased Turbo Tax software* and used the H&R Block website, and have had no problems whatsoever.
(Disclaimer: I am not a tax expert. I am only sharing how we typically handle our taxes. This is not meant to be advice on how you should file your taxes. Please seek a tax professional for questions you may have about the best way to handle your specific situation.)
Ideally, we aim to break even with our taxes – not owing anything additional but not paying in too much so that we are owed a refund. We’d much rather have our money in our own bank accounts than waiting to get it back in a lump sum at the end of the year. In order to try and avoid that, we have adjusted The Teacher’s W-4 form numerous times, trying to reach that perfect equilibrium. But since the tax code can be so complicated, it can be hard to reach that balance.
If you are one of the lucky ones who gets money back, congratulations! (In full disclosure, we are typically in that category as well). It’s normal to get excited when you have extra cash that you weren’t expecting. On the flip side, it can be tempting to spend it frivolously too.
If you find yourself with some extra cash in your pockets this tax year, here are some ideas to help you spend your refund wisely.
1. Don’t spend it right away
Oftentimes, people don’t make wise decisions when they make them quickly. Don’t rush off and start spending your money right away. If you lack the discipline to leave it alone for a few days, consider putting it in a savings account until you’ve made a decision on how it should be spent.
2. Review your financial goals
Setting financial goals is a great way to keep yourself moving ahead towards financial success. Revisit your financial goals and remind yourself of what exactly you are still trying to achieve with your money. This exercise will force you to consider how your tax refund might allow you to make progress. It may also be the dose of reality that you need to keep you from totally blowing it all.
3. Seek wisdom
4. Treat yourself a little
Depending on how disciplined you are with money or how tight your budget is, it might actually be wise to plan to treat yourself a little. Perhaps giving yourself a little money to spend on something extra will prevent you from going on a massive spending spree that you will regret later. A small reward might also provide you with some extra motivation to stick to your budget.
How you spend your money is a very personal decision, but here are some ideas to consider if you are still getting your finances in order. Check out Dave Ramsey’s The Total Money Makeover* if you need extra help on getting started.
– Start an emergency fund
– Pay down debt you may have
– Add to your retirement accounts
– Put some in your slush fund
– Pay extra towards your mortgage
– Start a college fund
– Make an overdue home or car repair
Once you are on good financial footing, you may be able to give yourself a little more freedom in the future. I encourage you to remember that by using your money wisely now, you give yourself the freedom and flexibility to spend it on things that will give you joy down the road. And who doesn’t want that?
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