How to Spend Your Tax Return Wisely
The deadline for submitting your federal and state tax documents this year has been extended by the IRS due to an overlap of tax deadlines and federal/state holidays.
This this year the deadline for filing falls on the the same day many will be lacing up and covering the 26.2 miles from Hopkinton to Boston… “Marathon Monday,” April 18th. For all the non- runners, and on a more formal note, this would be called Patriots Day…a statewide holiday in Maine and Massachusetts. Because of this, residents in both states receive an additional day, making their deadline Tuesday, April 19th. Regardless of which date applies to you, it’s just around the corner. Should you be an early filer, you may have already received your refund.
Each year your tax return, a reimbursement from the federal government and your state for money you’ve already paid into the tax system, infuses your budget with some extra capital. So, what are you to do with the opportunity? How are you going to spend your tax return….wisely?
I might caution you against splurging on some big-ticket items in favor of putting your tax return towards bringing some security and stability to your finances. Boring, I know…but as a financial advisor I think that’s part of the job description. That being said, using your tax return to pay down your debt is particularly true if you have any major high interest debts, including credit cards, which need to be attended to. Automatically allocating excess funds from your budget into paying down debt can have a profound effect on the future of your finances. If you think about it, the longer the debt goes unpaid, the longer you are paying interest on what you already owe. Think of it this way: if the interest rates are high, then in many cases you could be paying as much as double for the initial purchase by the time you finally pay off the debt!
Get rid of that debt!
If you’re already debt free, you may consider using your tax return to contribute to an emergency fund. You never know when you’ll need to access cash quickly to pay for an expensive car repair, ruptured water heater, or a leaky roof. Having an adequately funded emergency account can not only create a buffer that potentially protects you from having to go back into debt, but it also provides the ever elusive… peace of mind.
Finally, if you’re debt free and you feel that your emergency fund is prepared for the worst, then consider investing your tax return for retirement. Depositing your refund into your IRA, for example, can be an excellent way to fortify and bolster your finances for when you retire. Now, should you be one of the tidy few who have already addressed the items discussed…then by all means splurge on yourself, because you clearly deserve it!