I’m putting my tax refund to work this year. What about you? You might have all kinds of plans. You might be thinking about buying some new appliances for the kitchen or maybe even taking that trip to visit family.
But before you start making your vacation plans, consider the long-term impact of your decisions. A dollar saved is much more than a dollar earned. That’s because of compounded growth. A dollar saved can actually be $10 or $20 earned with enough time.
Here are a few ways to take that tax refund check and double or triple the value of the money:
1. Education Fund
The longer you keep money invested, the more powerful it becomes. That being said, if you have small children, putting even a little away now will have a huge impact on their future. Don’t rely on financial aid to pay for college. Rather than blowing the tax refund on a trip to Disney World in Florida, go to the beach, park and a few museums instead. Then, put the money into a college savings plan for the kids.
2. Retirement Savings
The same argument about the power of time and growth applies to your retirement. You know that putting even a little aside in the right retirement account now rather than spending it on a 75-inch plasma TV (do they make ’em that large?) will reap huge dividends for you down the road. For example, if you receive $5,000 in a tax refund this year, it will double in only 12 years if you can earn 6% of the money. Think of how fast your retirement fund will grow if you put your tax refund into your retirement every year.
Folks talk about improving their credit score. The best credit builder possible is to get out of debt. So if you are in debt, the very best thing you can do for yourself is to get out of debt as soon as possible. Anytime you get your hands on some green, use it to pay those credit cards off.
These are all boring alternatives. I realize that. If you need to spice it up a bit, take most of the money and use it to do something smart (like the three examples above) and take the small balance that is left and do something really fun and meaningful with it.
If you take your tax refund and do something good for yourself, you’ll be doing yourself a huge favor on a number of different levels. First, you’ll be strengthening your long-term financial situation. And you’ll become more aware of the fact that you can have just as much fun by spending less money.
What are you going to do with your tax refund?
Ronald R. Dodge, Jr. says
There were only a few minor years I did have a net tax bill from the IRS. All other years, I either had a 0 tax bill with no refund (College years and earlier), or I had a 0 tax bill with a hefty refund from the IRS (Starting in 2001 with the enactment of the Child Tax Credit and Additional Child Tax Credit as I never one time qualified for the EIC for one reason or another).
I’m pretty sure we have to pay the IRS as usual. I haven’t had tax refund for years and years.
I am looking forward to receiving a small refund, because I adjusted my withholding in September. I plan on using every (legal) possible way to reduce my income taxes though.
Ronald R. Dodge, Jr. says
I hear you there as I specifically do that. But then I have been doing my own taxes ever since the 8th grade. There was even a time I was audited for not having my tax returns cause I met the requirements not to have to file, and I also didn’t expect a refund. Even in high school, I learned about the 3 year and was was then 7 years, but is now the 6 year rule, if you didn’t file, those statutory time limits didn’t start either. As such, I was audited for so many years back in time. Thank God, I kept my W-2s as that was my saver and had them off my back pretty quickly, which I was able to prove my validity. Actually, given I knew the tax codes even back in high school let alone in college, I wasn’t scared when I was being audited.
Even now days, I still only pay about 2% of “Actual Gross Earned Income” into total payroll taxes. This year, it may drop down to be more like 1% given the FICA tax holiday for this one year. Note, though, the Make Work Pay Credit is no longer in play for the current tax year, thus why it would only drop by maybe 1%.