The IRS officially started accepting tax returns for the 2017 tax year on January 29th, but if you’re anything like me, you’ve been checking for W2’s since Christmas.
Tax refund season is one of those rare times throughout the year where trust and reliance in the government is at an all-time high. Whatever form that needs to be filled and whichever information needs to be divulged is done so with a diligence that we don’t even have when it’s time to vote.
That’s because money talks.
By May of 2017, after processing $128.8 million in tax returns submitted and after having allocated $97 million in refunds, the IRS reported that the average taxpayer received $2,763.
Now, I can’t speak on anyone else’s financial situation, nor am I saying I got that much back, but two grand is a decent lump sum. A decent enough amount where, if invested the right way, could really change your life a bit.
According to a 2017 survey by GoBankingRates, the majority of Americans (79%) did just that. Paying off debts and saving was the main response to how they’d use their refund. Here’s a breakdown:
41% plan to put the money in savings
38% plan to pay off debt
11% plan to use their refund toward a vacation
5% plan to splurge on a purchase
5% plan to use their refunds toward a big purchase, such as a car or home
With refunds either pending processing or on their way, we thought we’d give a few pointers so that you’ll flourish this season and not be broke.
Get back in the black
Paying off high-interest debt and credit cards aka ‘getting in the black’ is probably the wisest thing to do with extra cash.
Debt has a way creeping up on you and good credit is more valuable than the dollar these days, which is why taking care of those high interest rates at the first opportunity is ideal.
Open a credit card
If you have a credit card, your refund’s objective should be ensuring that you are up to date and on time with your payments.
If you do not own a credit card, using your refund to open one and establish credit is also a very good move to make with the extra money.
Growing up, I was always warned about credit cards; so much so that I looked at them as traps to be avoided at all costs. This is the wrong mindset to have. Credit cards are one of the only true ways to build trust in this market.
If you can find a card that offers benefits (like travel and lifestyle rewards), using your refund to open one would be beneficial. The key is to make sure you pay it off every month.
Retirement starts now
If you are putting a percentage of your paycheck towards your 401(k), your refund is a perfect chance to increase that contribution.
Increasing a 3% outtake to 6% won’t hurt as much with the refund money as a cushion and if your company matches what you put up, you’d end up doubling your savings anyway.
It’s easy to live in the now, but with a little more focus toward your future, you’d be surprised the difference it can make.
Saving, of course, is always a great option for extra cash.
Whether it’s hospital expenses, a parking ticket, or whichever unforeseen expense that may pop up, having money on reserve is never a bad idea. The only problem with having money sitting however, is resisting the urge to spend it.
Invest in yourself
Something that always confused me was people’s unwillingness to invest in their dreams. When refunds come in I see my peers buy tattoos, clothes, rims, and trips to all sorts of exotic places, but I never see them put the money where their mouths are.
A studio mic may cost a lot of money, but if rapping is a serious dream of yours, the dollar amount shouldn’t matter.
While real estate class (and school in general) is never the first place you’d want to spend your extra money, if that overhead is necessary to furthering your dreams, why not make it happen?
The key is to not look at refund money as “spending money.” When we shift our perspective on extra cash from one for pleasures to one for life’s game plan, we’ll begin to start taking less trips and start jumpstarting more dreams.