It is the wonderful time of the year when the U.S. Federal Government graciously returns money to the majority of working class Americans. Some people end up owing money, but most get a return from filing their taxes. While you want to make sure you correctly fill out a W-4 to minimize your return each year, you may unexpectedly receive a sizable return. There are a lot of ways to use the money, but there is definitely a best way to use your tax return.
Suddenly having an additional couple hundred or thousand dollars can bring a lot of consumerist thoughts into your mind. You may want to buy a flat screen television, plane tickets to someplace warm or a whole new wardrobe. Before you even receive the check in the mail you have planned to spend your tax return. Prior to going out and spending the money you are returned on your taxes; let me first provide you with the best possible way for you use your tax return.
Don’t Spend It
Just don’t spend it. Don’t go to the mall. Don’t order something off Amazon. Don’t buy yourself something nice. Don’t acknowledge it’s existence.
Save it.
Doing so can make a large impact on your financial situation. Take the money you receive and put it somewhere where you will forget about it for year or can’t easily spend it.
- Use the money to start a Roth IRA to boost your retirement savings.
- Create a 529 Savings Plan to start saving for your children’s future education.
- Pay off some of your loans or credit card debt.
- Use the tax return to start an emergency fund.
- Keep the funds in a checking account as a cushion to quit living paycheck to paycheck.
If you can’t part with the entire tax return and want to treat yourself a little bit, at least save a significant portion of it or use it in one of the above ways.
Delayed Gratification
Patience is one of the most important virtues you can have if you are to be financially successful throughout your life. Learn to save your windfalls and you may not have the latest gadget or toy, but your net worth will continue to grow.
How are you planning on using your tax return this year? Did you treat yourself, save it, or do a combination of both? I’d love to hear in the comments below.
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{ 9 comments… read them below or add one }
Ha! I don’t get a tax return this year. Which is AWESOME! The last two years I’ve owed thousands of dollars in taxes and I’m thrilled that I “broke even” this year.
Breaking even is definitely better than owing! Thanks for sharing Vic.
Caleb,
It’s so true that people already have it spent before they receive it. Saving it and forgetting about it is a much better idea.
I know that spending it before you get it is a simple thing to do. Once you see that amount at the bottom of what you are getting back, you automatically think of something you have been wanting that costs about that much.
Avoiding the temptation can be hard, but it is a good habit to develop.
Ah, tax returns. Back in college, it was a ‘surprise’ couple hundred bucks which I’d use to go out, etc. This year, 100% of it has gone straight to my savings account. It’s nice to take a look at that cushion of money whenever logging in to check balances!
That’s great self control Vivek! Banking tax returns, raises, or bonuses at work can lead to a strong cushion of savings throughout your life. Way to go!
Caleb,
At this point, I don’t know how much tax money I’m about to get. If I get something back, tax authorities are paying it to our accounts at the beginning of December, which is clearly geared towards Christmas shopping (that’s how the tax money is paid in my country).
Usually I have spent money to a training program (internet business related) I wanted to purchase, books. Some of the money has gone to savings account too.
I actually use mine to pay debt, but if I didn’t, then ti would definitely go to savings
It’s not a free pass to go spending on things you don’t need.
Debt payment is the perfect thing to use the return on. I can make the most positive long term impact.
Thanks for stopping by.