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    What to Do with Your Tax Refund

    So you survived tax season and now you probably have a check in your hand that may feel like a bit of a windfall… even though it was yours all along. How do you decide what to do with this “extra” cash? Financial advisors like to remind consumers that you shouldn’t treat your refund as extra money you happened to find. It should be spent with a purpose and, ideally, not simply placed in your checking account to pay for gas and groceries. Why not use this year’s refund to improve your financial situation for years to come?
    1. Adjust your withholdings.
    If you consistently receive a large tax refund each year, you may be withholding too much from your paycheck. Even though it is nice to get a big check every April, it would be better to save, invest or pay down debt with those funds throughout the year. So, your first step should be to update your W4 and try to “break even” with the IRS. You can use the IRS Withholding Calculator to help you figure out how much you should be withholding.
    1. Start or build your emergency fund.
    You’ve heard it time and again: everyone should have an emergency fund. Experts say you should have six to eight months’ worth of expenses saved up in case of an emergency. That could take months or even years to save up if you’re only putting away a little bit at a time. Your refund is a great way to quickly build your emergency fund to help you prepare for any financial disasters that might come your way.
    1. Pay off your high-interest debt.
    After ensuring that you have an emergency fund, you should pay off any high-interest debt you have looming over your head. If you have a lot of debt, putting your refund in your savings account is simply delaying paying off what you owe. Give your refund a purpose and start paying down your debt, such as student loans, car loans and credit cards.
    1. Invest in your retirement or college tuition.
    Use your tax refund to get a head start on Roth IRA contributions or start a 529 college savings plan for your children. By investing in the future with one of these accounts, your refund can quickly grow over the years and have a positive impact on your family’s future.
    1. Make home improvements.
    Have you been delaying getting a new roof or updating your bathroom? Your refund is a great way to pay for home improvements. Consider replacing old appliances with energy efficient ones and you will not only increase the value of your home, but also decrease your monthly utility bills. 
    1. Donate to charitable causes.
    Unfortunately, many people can’t afford to donate to charities during the year when their budgets are tight. If you’ve taken care of your emergency fund and paid down some debt, your refund is a great way to spend that extra money.  Giving to a charity will benefit your community or a cause you care about, and you can claim the tax deduction too. 
    1. Make an extra mortgage loan payment.
    By making one extra payment on your mortgage each year, you can save thousands of dollars off the back end of your loan.

    When you get your refund, debt reduction and your emergency fund should be priorities. Of course, you can always use it to treat yourself to a special vacation or other fun perk. But you should always take care of debt and save for the future first. Stop by Delta Community to speak with someone about options for your money this year!

    Article submitted by Autumn
    Posted: February 21, 2013 by Delta Community