Once Christmas and the New Year holiday pass, the first thing that comes to mind with the onset of any new year is taxes. As the days work closer and closer to the deadline, we gather paperwork, crunch numbers and in some cases, panic at what may lie ahead. In other cases, we look forward to the possible windfall we might receive.
Tax professionals everywhere work long, challenging hours to help people file on time without losing their sanity.
Oh the joys of paying taxes.
Over the last few weeks, you’ve likely read articles or seen reports of some getting massive refunds, while industry experts recommend adjusting your withholding so that you don’t get a refund check this spring.
Most people would agree that giving Uncle Sam an interest free loan for several months to a year could be detrimental to your financial well being – especially when you could be putting that money to use for your own financial goals. However, for many, having the government “hold” their money for that length of time is the easiest way for them to accomplish their savings goals.
If you already adjusted your withholdings so as to prevent a large refund, then you are well on your way to improving your family’s finances – and you should pat yourself on the back. It’s not always easy to forego that once a year windfall that many love getting every spring.
But.. if you haven’t adjusted your withholdings and you don’t have a plan for the refund check that’s coming your way, consider some of these options to help you take a step towards financial security.
Start or Contribute to your Emergency Fund
If you don’t have at least $1,000 set aside in an Emergency Fund, it might be a wise idea to put your refund check into your savings account. This savings account can cover any unexpected expenses that you may incur over the next year – from medical bills to a broken water heater.. to perhaps even job loss. If you don’t have a savings and you have credit card debt, start by funding your savings with $1,000 and then make the move to start paying off your credit card or consumer debt.
If an emergency pops up, your starting $1,000 in that emergency savings account will put you in a better place to pay for that unexpected expense without having to rely on money that you will have to lend back later.
Pay off Consumer Debt
If you are paying on high interest consumer debt – perhaps credit cards, or even consumer loans, focus on targeting that debt from smallest to largest regardless of interest rate.
It’s all about small victories – and that huge refund check may be enough to pay off a few small credit cards and give you the motivation you need to pursue the larger, greater interest bearing balances over time. Sure, it might make sense to pay the bills with the highest interest rate, but if it was about the numbers, then you wouldn’t be in the situation you are in today.
That’s brutal. But I’m just being real. ;)
Focus on the small debts first, and relish in the small victories- move up to the larger bills by carrying over that money spent.
Save for your Retirement
Every year we see some pretty staggering numbers in regards to saving money and retirement – this is one that I recently saw. Shocking.
One in three Americans has nothing saved for retirement – and women are 27% more likely than men to have NO retirement savings. (Src)
Once you fund your emergency fund and conquer your credit card debt, then pat yourself on the back – because you are in a place that most people would only dream of being in! It’s time to look ahead ~ and start thinking about retirement.
If you don’t yet have a retirement fund established, now is the best time to get that started.
Consider a Roth or Traditional IRA and set up an automatic draft from your bank to fund that on a monthly basis. IRAs are great because they give you tax benefits that allow you to save a little more over time.
Tax benefits vary greatly between a Roth IRA and a Traditional IRA.
Related post: The difference between a Roth IRA and a Traditional IRA
Start a College Fund
While not all children may go to college, chances are that at least one of your children will – and although the cost of their college education might just be one that they can pick up on loans, if you are thinking forward, chances are you might want to help set them off on the right foot – without having to rely on loans.
By starting a savings plan early, you can help reduce that burden of high debt that they might have from paying for their education. And while not everyone may agree that it’s the parents responsibility, here are some things to keep in mind:
- It’s cheaper to save now than to loan later.
- It’s better to help them start off on the right foot with some advance planning than to see them struggle with debt and loans at a relatively early age.
In the end… it’s cheaper to save now than to loan money later .
Invest in your Health
If anything is true, it is that health should be number one, because without it, nothing in life is fun or enjoyable.
And while many may agree that health is indeed number one, or should be placed as a priority, the reality is that many don’t quite make it as much of a priority as they should. Staying healthy requires constant effort – and sometimes that effort requires far greater commitment in the face of pleasure and convenience.
We have to believe that our actions can truly make a relatively huge impact. This being done through daily actions, no matter what may be more acceptable, easy, convenient, or cost effective.
We need to make that a most, if not all of the time. Not just when it’s convenient. You will never be able to do it 100% of the time, but at least make it a commitment most of the time.
With that said, take this refund and invest in your health – invest in pastured beef from a local farmer, raw, pastured dairy (if legal in your state), check our your options for a local CSA (I recommend this one), and more.
Invest in your Family
Although money can buy happiness, it can only buy happiness to a certain point. After a period of time, the happiness and satisfaction for that item wears off, as it gets used, and less shiny. Before you know it, it becomes the new normal.
Experiences, on the other hand, become part of our identity. They become a bigger part of yourself than material items. While you might associate your physical items as part of you, they really don’t connect you very well with others. Doing outdoor activities, traveling or learning a new skill become part of your identity.
The best thing to spend on your children is your time.
One of the best ways to spend time with them is through a family fun pass.
Put your refund into POGO Passes for your family and enjoy spending time with them over the next 12 months as you score FREE admission to area attractions — whether you are in Phoenix, Las Vegas, San Antonio, Austin, Dallas or even Tucson.
In the End…
It’s true, that none of these 6 options above are quite as glamorous as purchasing things like a new car, flat screen TV, going on a cruise or even maybe buying that computer you have been looking at, but it’ll at least give you financial security that you need to better help your family.