It is refund time: Manage it wisely!

Plan for smart uses of your tax refund today.

This is the time of year that many of us dread and love at the same time. Completing your income taxes can be, frankly, a “taxing time” for some households but for others it can mean a potential financial windfall. My experience over the years is that if you do not have a plan in place, that windfall can be gone before you know it.

To get the most out of your tax refund you need to develop a plan. You will likely feel much better if you use your tax refund wisely to make the greatest impact on your family’s financial health. There are many different saving strategies. One that I share with participants in my money management classes is the “a third, a third, a third rule.” Basically, you use a third for saving, a third to pay down debt and a third to enjoy yourself. Another rule I have seen is to allocate 80 percent of your refund to improve your financial situation and the remaining 20 percent to enjoy or to make a special purchase. (For more information about how to split your refund automatically, visit the Refund Inquiries page on the IRS website.)

Let’s talk a little more about ideas to improve your financial situation. I have already mentioned paying down debt. This can happen in many different ways. One is to pay down credit card debt if you are carrying a balance. Paying down credit card debt will save you money. If your credit card charges 18 percent interest, paying down the debt will eliminate or reduce the cost you are paying in interest. Once you do this, try to pay your credit card bill in full every month to eliminate the interest cost.

Another idea is to put aside part of the refund for big occasional expenses like holidays, birthday gifts or special events that may be coming up in the near future. Create a new savings account - such as a vacation account - with these funds, then plan to make monthly deposits to this account. This will help avoid using credit cards and accumulating debt because now you have the funds put aside for these special events or goals.

Open an emergency savings account. Have the saving account easy to access so the funds are available for unexpected expenses. The biggest challenge is to be disciplined enough to only use the funds for an “emergency” such as fixing your car or replacing your washing machine or paying an unanticipated medical bill.

Lastly, consider adding to your retirement savings. A small deposit can make a big impact on your retirement account. Regardless of what you decide to do with your tax refund, creating a plan will assist you to make the most of your money. For more ideas, visit Michigan State University Extension  and

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