5 tips for using your income tax refund wisely
Make a plan now to avoid buyer’s remorse.
Income tax refunds can seem like a windfall of extra cash! If you filed them recently or will be in the near future and are receiving a refund, plan now for how you will use that extra cash. It is very tempting and hard to resist going on a spending spree, but you may realize later that you could have spent your refund more wisely.
Here are five tips for spending your income tax refund:
- Catch up on past due bills. Take the opportunity to relieve financial stress in your life. If you have past due utility bills, auto repair debts, property taxes or medical bills, find out the total amount owed and pay as many as you can with your refund.
- Put the money aside for upcoming expenses that are not part of your regular monthly spending plan such as new tires for the car, annual property taxes or other anticipated expenses. You will thank yourself later.
- Pay down credit card debt. Getting rid of credit card debt will free up your monthly budget from the credit card payments and save on the amount of interest spent on those debts.
- Put the money into a savings account for future peace of mind. If you do not have an emergency fund for unexpected expenses such as appliance or furnace repairs, car repairs and other big out-of-pocket expenses and saving the tax refund will enable you to absorb a financial shock these types of events can create.
- If you are receiving a large tax refund, consider reducing the amount that is withheld from your paycheck by your employer. While it may feel good to receive a substantial income tax refund, it may make more sense to have more money available in your paycheck to pay for monthly expenses and bills.
With the changes in the tax law in 2018, the amount of income tax refund you receive in 2019 may change. The IRS will have a new calculator for estimating your income tax for 2018 available soon.
By planning ahead before receiving your income tax refund, you can make decisions about how to use the money in ways will provide the maximum benefit for your situation. Make your plan now.
Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, please visit either the MSU Extension events page or MI Money Health website.
This article was published by Michigan State University Extension. For more information, visit http://www.msue.msu.edu. To have a digest of information delivered straight to your email inbox, visit http://bit.ly/MSUENews. To contact an expert in your area, visit http://expert.msue.msu.edu, or call 888-MSUE4MI (888-678-3464).