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.
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.
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.