KNOXVILLE (WATE) – With tax season coming to an end, millions of people are now thinking about ways to spend their tax refunds.
It’s tempting to view your tax refund like a bonus at work or you won a small piece of the lottery, but financial planners suggest putting it to better use than blowing on something trivial. For example if you pay back credit card debt, that gives you an instant 15 to 20 percent return on your money.
If you’re debt free, start that “emergency” fund of savings for those unexpected expenses or add money to your individual retirement account.
Once you receive your tax refund check have a strategy for spending it or saving it. Financial experts warn against dropping that money into your checking account as a short-term move while you decide. If it stays in your checking account for any length of time, that’s a wasted opportunity to make a small return from an interest-bearing savings account.
Playing it safe is always smart, and you certainly can’t go wrong with tucking your refund away for a rainy day. Some people use their tax refund to catch up on monthly expenses, but financial advisers say it’s a bad way to move back into the black.
If you have monthly debt problems establish a plan with your refund money to get rid of high-interest debt like credit cards, car title loans and private student loans, so your typical monthly bills won’t be so onerous.
The best advice is put your refund to work by starting your own debt elimination program
It’s funny how a little cash in your pocket makes you realize how much you absolutely need the latest big screen TV, expensive jewelry, or that new four wheeler you absolutely must have. Remember this: if you didn’t need it before the refund, you probably don’t need it now. Again, the financial experts say if you wouldn’t have paid for the much-needed item out of your paycheck, don’t use your refund for it either.
Now, with your windfall it’s normal to want to help out friends or distant family members. but don’t get suckered into becoming a bank for someone else. Yes, it may come with some guilt involved because it’s difficult to avoid the situation if friends know you’re getting a tax refund. To avoid hassles and hurt feelings, don’t blab to anyone outside your immediate family that you’re getting money back the IRS. Lending to anyone outside your immediate family unless you have an ample financial margin in place, can be tricky because it changes the dynamics of the relationship if you don’t get the money back.