Come April, everyone’s thoughts stray not only to spring weather but also to what to do with your tax refund. Whether to spend, save or try to stretch your tax refund is often a personal decision that you should make after weighing all of your options. We’ve compiled a few tips to help you with whatever your decision is.
Reduce your debts to “pay it forward” to yourself
Start by thinking of your tax refund less as a gift and more as money that the government set aside for you throughout the year. The “free money” mindset is why many people end up wasting their tax refund money instead of doing something useful with it. If you have any debts, use your tax refund to pay a chunk of them! Also consider paying your bills forward a few months. Imagine what you could do monthly with that money! Often a large tax refund is a sign that you have had too much withheld from your paychecks during the rest of the year. Although a smaller tax refund isn’t all that exciting, it’s a good sign that you’re doing something right the other 11 months out of the year. Your refund is based on the number of exemptions you take on the W-4 that you fill out with your employer once you start a new job. However, you can always change that! If your marital status changes or if you have a baby, check your W-4 to make sure it’s as accurate as it can be. You can also check online for a W-4 calculator that will help you estimate which scenario will work best for you. Grab your paycheck and your last tax return and check one out!
Splurge a little!
Even in the best case scenario, sometimes it’s unrealistic to think that you won’t splurge a little if you get a large tax refund. That’s ok! If you know you’re getting a large amount of money back, plan to set some of that aside for pleasure. Go on a small vacation. Buy a new television or a new pair of shoes! Then set the rest of that money aside in an emergency fund (it’s recommended to have 3 – 6 months expenses set aside) or to help pay off those high interest rate credit card loans. You’ll feel better about being responsible with the rest of it if you allow yourself a portion to spend on what you really want. It’s good psychology. In the end, it is your money. You worked for it. Allowing yourself to spend a portion of it as a thank you to yourself for all your hard work can help motivate you to do the responsible thing moving forward.
If you’re receiving a sizeable tax refund, make sure you budget for it. Splurging a little and then using the remainder to pay down bills and save for the future is the best plan of action, even if it isn’t the most fun! Please check www.taxreturn247.com.au for additional tips, tricks and information.