So you are getting a tax refund – now it is time to come up with smart decisions as to what to do with it. Sure, it might feel good to go on a big shopping spree when the money comes in, but then what? You wind up with stuff that does nothing to better your future, and you might even overdo it and find yourself deeper in a financial hole. It makes sense to plan in advance on how to best make that money work for you and your family.
The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can make mistakes with money. We offer a free consultation to evaluate your situation and help you take steps to avoid the kind of blunders that can blow your refund and keep you from reaching your financial goals.
Here are some suggestions as to how to avoid frivolously spending your income tax refund:
Do not spend anything until the money arrives in your bank account
Make sure the money is there before spending it. Emergencies may arise that stick you with extra bills you didn’t expect and can’t pay for. When the money does arrive, keep it in your account and take your time to examine the best way to spend it.
Make a spending plan
Once you know the amount of your refund, create a spending plan by listing all your income, your monthly fixed expenses, and your debts. Also, list expenditures that might be coming up and ones you would like to make. This will help you prioritize these items and give you a better picture of how to best use the money.
Pay off your debt
List your debts by balance and interest rates and prioritize them, and then start paying them off. Keeping credit card balances and paying the minimum costs you a ton in interest. Once debts are paid off, you will wind up with extra income each month.
It is suggested that you pay off the debt with the highest interest rate first, then pay off the debt with the second-highest interest rate, and so on. Another approach is to pay off the smallest debt first, which completely eliminates one payment from your list of debts. Choose whatever method will most motivate you to get out of debt.
Use it for Savings
If you don’t have debt, but you haven’t gotten around to saving anything, a refund can be the start of a savings plan. Your emergency savings should ideally be enough to cover six months worth of expenses for unexpected emergencies like a car repair if you end up losing your job and need cash to pay your everyday expenses.
If you have savings, consider investing for the future, including:
- College savings — If you have children, consider contributing to a 529 college savings account. Ohio gives you a savings on your state income taxes — you may deduct contributions to the Ohio Tuition Trust Authority’s College Advantage 529 Savings Plan, up to $2,000 per beneficiary per year if these amounts do not qualify as a deduction on page 1 of IRS form 1040. When the money is withdrawn to pay for college costs, it is tax free.
- Retirement savings — The more money you contribute to your retirement savings account when you are young, the more it will grow. If your employer matches your 401k contributions, it’s free money, so take advantage of it. If you don’t have a 401k at work, consider opening up aRoth or Traditional IRA.
Buy things that will save you money
If you are OK with debts and savings, look at buying things that can help you save money in the future. Upgrade your house with energy-saving features and appliances that cost less to run, if you need them. Buy things in bulk if you can get a discount, but make sure they are things you need and that won’t go bad.
Pay Down Your Mortgage
If you have taken care of debt and savings, making extra payments on your mortgage can significantly reduce the interest that you pay on your mortgage over time. Be sure your mortgage does not have pre-payment penalties, and stress to your lender that you want your payment to go toward your principal.
Advanced education and new certifications can help you earn more money or get a promotion. Work toward a degree, keep your mind sharp, and increase your knowledge.
Buy Things You Really Need
If you’ve been putting off buying something that you genuinely need, here is your opportunity to get your car repaired, replace a broken appliance, or get that fast-growing child some new clothes. Putting off necessary expenses can often end up costing you more in the long run. Take care of them as soon as possible to avoid ending up in an emergency situation.
The experienced and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer know how difficult it is to make good financial decisions, even positive ones like spending your tax refund. If you find yourself in financial trouble, we offer a free consultation to evaluate your entire financial situation by examining your income, your debts and your goals.
To learn more about how our firm can be of assistance, call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what solutions will work best for you.