Are you expecting a tax refund?
Don’t let it slip through your fingers.
There are some little things you can do that make a big difference in making the most of your tax refund.
My Story
Learn from me.
For years, having four young kids pretty much ensured a decent yearly tax refund.
However, I never really planned for the expected tax refund.
Most years, the refund seemingly evaporated as soon as it was available, sometimes before.
In hindsight, it’s always easy to know what you should have done.
While I can’t go back, I can pass on some basic lessons in hopes of helping others make the most of their expected tax refund.
Do not take a loan against the anticipated tax refund.
Along the way, someone has probably admonished you not to borrow trouble.
Taking any kind of loan against an expected tax refund is literally the definition of borrowing trouble.
These loans go by many names but the one I hear the most is an RAL (refund anticipation loan), and they are offered by many preparers.
It is a loan. Do not mistake this quick money as a refund.
If anything goes array with your refund, you are still responsible for repaying the loan.
As long as you choose direct deposit, most tax refunds are available in about twenty-one days.
If you have lived without the money for a year, what’s 21 more days?
True story: A student at the school where I formerly worked filed her taxes on day one, claiming her young child as her dependent.
The infant’s dad beat her to the punch. No refund, loan in limbo, lots of tears and stress.
While I don’t recall the ultimate outcome, I do remember it was a mess to untangle.
Don’t spend a tax refund before you get it.
Buy now, pay later ads are everywhere this time of year.
The offer is tempting. Buy it now, interest free for twelve months.
Pay it off with the money from your income tax refund.
Awesome! Until the motor blows up on your vehicle before the refund arrives.
If you are planning to use your tax refund to make a major purchase, wait until the funds are available in the bank before making a financial commitment.
Have a written plan for what you want to do with your tax refund.
Before you spend a penny of the refund, spend it on paper.
Write down how you want to divvy up every single penny of the refund.
Having a plan before spending the money is the absolute best way to ensure you make the most of your tax refund.
Speaking of plans, the majority of people plan to use their refunds in one of three ways; saving, paying down debt, or catching up on daily essentials.
Saving
If your plan includes saving, deposit the portion you want to save in a separate account that is not easily accessible.
Easily accessible money tends to disappear.
Paying down debt
If paying down debt is your priority, focus on debt that isn’t revolving.
If the debt you are paying off is revolving, like a credit card, have a plan in place that keeps you from running the balance back up.
Catching up on daily essentials
If you are behind on daily essentials, then catching up is the first priority.
However, if your refund is needed to catch up on normal, everyday bills, it might be time to consider adjusting your withholding.
Receiving a tax refund simply means that you are having excess money withheld from each paycheck.
As nice as it is to get a big chunk of money once a year, it’s pointless if the entire amount is needed to catch up with daily life.
A better option might be to adjust your withholding so that you receive more in your paycheck throughout the year.
Just a thought. I’m not a financial advisor, just someone who’s made a lot of mistakes and learned the hard way!
If you are fortunate enough to be receiving a tax refund this year, lucky you.
Just don’t let it slip away.
Take just a few small steps to ensure that you end up making the most of your tax refund.
******************************
Check out Micki’s Little Letter!
******************************