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Tax Refund hasn’t even come in and already you’ve got great plans for where it will go. Am I right? We start planning all kinds of great things like the new pair of shoes, the great new tech you keep seeing using. Before you go all out on your “dream” or “wish” list, give me a minute or two of your time and consider some other possibilities. I’m offering you here a moment to think about the “big picture” and a better future. (no, I’m not selling vitamins!)
The tax filing deadline comes every year. With the rare exceptions, it’s pretty much Spring, or as we’ve all come to memorize the April 15th date. (pandemic years don’t count, can we just erase those months, correction, years please?!!)
State taxes greatly vary, however, the average American tax refund in 2019 was $3000, and the 2020 average tax refund was $2700.
If someone was to ask you what you did with your refund 5 years ago would you remember? What about just last year? I’m certain there’s a fair amount of you that have no idea. I’m sure it went to this that and the other, meaning nothing of any long-term importance to your budget. If I’m wrong I’m wrong, but just how much of your refund do you start spending in your mind months before it even arrives? Now we’re talking.
While those are all amazing ideas, they don’t necessarily mean that they are the best money decisions to make.
10 Money Smart Things to Do With Your Tax Refund And What To Beware Of
We all have wanted before. No one is unaffected from feeling that from time to time. Some spend money on clothes, some on homes, and some on yummy food…each of us have our “loves” in life. While splurging here and there may be fun, there’s a time and place for everything.
Tax refund time can be a really hard time to find that stop button on purchasing those wants but, it is possible.
Here are a few smart suggestions for 10 money-smart things to do with the tax refund that will be worth your while and have you breathing a sigh of relief for years to come.
Pay Yourself First From Your Refund
Decide an amount between 10-20%. Pick a number, any number. Whatever you choose, that is money that you pay yourself first. Ways to pay yourself could be adding to your retirement fund, your savings fund, or a buffer for your checking. Regardless, you pay yourself first.
divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and socking away 20% to savings. 20% savings should go towards Emergency Fund first. Any remaining towards Retirement Savings
Prepare for the unexpected
While calling something an “emergency fund” can seem a little daunting…it’s important to have one. Life happens and is sometimes out of our control. By putting a portion of your tax return away for a potential need later, it is a great way to stress less when something may happen.
Buy a need
You read it right..a need, not a want. Is your home in need of a new appliance or repairs? What better time to make those purchases than when you have some excess cash flow coming. Not enough in the return for your ‘need’ then put a percentage of the return away to save for that purchase and contribute weekly towards making it happen
Read more about Needs and Wants Here.
Reduce Mortgage With the Help of Your Refund
Take a look at how much you still owe on your current home and think about applying a portion of your tax return to lesson that debt. Even an extra payment or two towards the principal is a smart and responsible way to use those funds and ends up saving you interest along the way as well.
Invest in Your Passion
Have you been thinking long and hard about branching out on your own, and feel that after all your preparation and planning, you are ready to do so? Then invest in yourself and your future with your tax refund. What an amazing gift to be able to give to yourself. The gift of owning and running your own business. I earned myself this blog a couple of years ago for pennies. I use tax refunds for my continued education in writing and content improvements.
Be Patient
Who says that you have to do anything at all with your tax refund right when you receive it? Don’t pressure yourself into making a decision, if you aren’t 100% behind that choice. There is time to evaluate your needs and decide at a later date.
Educate Yourself
Love to learn and want to improve your resume for your future career? Use that tax return to take a few courses and get back into school. Get ahead by using that refund!
Tune-Up That Car
Putting off needed improvements for your vehicle may end up doing some expensive damage in the long run. Take it to a garage and have ’em spiff it up. If your car is paid off, taking care of it needs to be a priority. No one wants to be back in the land of car loans due to a car breaking down!
Make Your Health a Priority
Start buying healthier food and eating better and get a few pieces of workout equipment for your home. Investing in your health seems like an extremely smart idea on how to spend your tax return!
Set Up a Scholarship Fund
Do you want to give back to your old Alma mater? Set up a scholarship fund for students within a certain degree or for those about to graduate high school. It can be a one-time scholarship or a reoccurring, depending on the amount. GIVE back. Giving to any community cause or something for the greater good is always a good idea. Start a change jar specifically for just giving going forward. Your tax refund is a good time to start better habits.
TIPS N TRICKS
Tip #1
Make a list of what you plan to do with your tax return ‘before’ it hits your account. Once or twice review the list, make sure it’s a list you can financially live with. Once you finalize your priorities then hang it up and stick to it!
Whatever your choice, choose wisely. Tax return time only happens once a year. Spending wisely with your return this year has the potential to keep helping you out throughout the entire year by saving money along the way. Fight the urge to spend on the wants, before you address the needs. While it may be hard, it is a huge relief in knowing that you are taking care of yourself and your future in a responsible way.
Tip #2
Check out these 10 questions to ask yourself before spending.
Tip #3
STOP watching TV! Those ads are geared to make you want to spend! I DVR everything and fast forward through those ads, it’s probably saved me thousands.
Tax Day is April 15th. It comes every year and with it, our Facebook feeds, Twitter, and Instagram accounts are full with everyone updating and showing off friends & family playing with the new “toys” they got with their tax refund!
Some people get a new car every year, or go on a family vacation, or go to an extravagant dinner they couldn’t have otherwise afforded.
For many families, tax season is the best time of year. Soon, they’re taking pictures of the latest Disney vacation, or the latest piece of technology they purchased. What does all this have in common? People are spending when they should probably be saving.
Let’s be real. Saving just isn’t as fun as spending but what if I told you that saving your tax return each year sets you up for opportunities to have more spending money throughout the year? Would you be interested in hearing more?
It’s true that a little delayed satisfaction can go a long way here. Let’s take for example, a family of four and a $1,500 tax refund. Believe it or not, that amount is modest by some standards.
This $1,500 could provide
- a nice vacation for a family of four including hotel lodgings, fun and meals, OR
- an action packed staycation at local attractions, museums & theme parks OR
- an elegant night on the town (or two), OR
- a down payment for a newer, nicer car on a trade-in.
But what if, instead, that same $1,500 was used to pre-pay your family’s electric bill (average $150/month) for 10 months? That would provide instant cash access of $150/month for 10 months!
Think of all the fun your family could have each month with that extra money. You could go to a museum, or go to the movies and dinner, or save a couple of months and go to the local attractions. You could eliminate a bill that you pay each month, freeing up room in your regular budget and allowing you to create a new budget item of “FUN!”
Alternately, you could choose to pay off a debt, freeing your family of the burden of monthly payments and opening up that money for spending. You could also save or invest that money and see real dividends! That same $1,500 saved, or better yet, invested, could provide you with some real earning potential over the course of just a few years.
For a relatively conservative example, let’s say that your family invested $1,500 in a return that yielded 4% compounded annually. The first year you would have $1,560.00. Doesn’t sound like much, does it?
Let’s say you decided to do the same again with your return (each year is $1,500) for an additional 3 years. In a matter of 4 years, your family would have $6,369.70. Doing this for 10 years would leave you with a comfortable $18,009.16. Now THAT is something to get excited about! Think of all the ways you could spend all that money.
I think you might agree it was worth the time and energy spent saving. Sometimes the best way to spend your tax refund is not at all!
Other questions commonly asked
How long does it take to receive a tax refund?
The processing time for a tax refund depends on many factors, including the complexity of your return and where you live. Most returns are processed within 4 weeks, 8 weeks or 3 weeks during filing season. It is important to remember that all returns are different and processing times vary from person to person.
TurboTax has a return process that allows your account representative to check the status of your refund. With this tool, you can see how much money you have received and when you should expect it in the mail.
If you are waiting for your tax refund, it typically takes about 10 weeks to get the money in the bank. The IRS sends out notices of intent to issue refunds at different intervals so they can account for any changes before issuing a final notice.
It’s important not only to track when your state issues its refunds but also how much you’re receiving because there may be some stipulations with what happens if more than one person receives an income from that state or city/state has increased taxes since you filed your taxes.
You should also beware of scams that promise quick refunds, as it is more likely than not you’ll receive a smaller refund than expected.
If you haven’t received your refund and it’s been more than 21 days since filing, contact the IRS to file a claim. Most states send refunds within 10 business days of receiving an application.
Track My State Refund is another tool that allows people to track their state tax refund status in real-time. It also has an option for paperless check or direct deposit payment options so users can get their funds faster without waiting on mail delivery from the government office.
How long after a return is accepted is it approved?
It takes up to 21 days for the IRS to process your tax return. After this time, you can track your refund status online or by phone. If it’s been more than 21 days since you submitted your return and you haven’t received any notification about its status, contact the IRS.
Once you receive confirmation that your federal return has been accepted, the IRS will start processing it. It’s important to remember that “the refund can be issued weeks or months after filing.”
The process of claiming a tax refund is straightforward and easy as long as you follow these simple rules: 1) You’ll need to file electronically by submitting Form 8888 with your e-filed return; 2) Be sure not to exceed the direct deposit limit for each month; 3) If approved, the IRS will send a confirmation letter to the address on file with your tax return.
The paper slips through your fingers and you can’t believe that it’s all gone. You hope to get a big refund check in the mail, but when it doesn’t come, the anxiety sets in.
There are so many things to do with your tax return!
You’re tired of chasing your money and getting nowhere. It’s time to get a handle on your finances!
Imagine having well thought out plan that helps you find the best ways to spend your tax refund. A budget plan shows you where you’re going to spend each dollar, so nothing will fall through the proverbial hole in your pocket.
Get control over where your hard-earned dollars go by using these smart ways to spend your tax refund. Don’t let this year be a repeat of past failed plans.
This will be the year you make wiser decisions, put your money to work for you.
