What NOT to Do With Your Refund
by Pat Philippe
It’s that time of year again. With good planning, good record keeping, and a good tax preparer, some of us will be fortunate to receive refunds this tax season. On the other hand, some of us will discover that we owe good ol’ Uncle Sam, some of us will choose not file, and many of us who do get refunds will squander them irresponsibly and sometimes, immediately.
This year, let us all make better financial decisions. The textbook sign of foolishness is doing the same thing over and over again, and expecting to reap different results. Let us regain our financial wisdom in 2007. Here are 5 things to consider NOT doing with your income tax refund…
- Don’t blow it at the mall. Retailers are working hard to target consumers with sales and promotions geared to encourage people to spend part or all of their refund on electronics, new clothing, food and entertainment (i.e. liabilities).
- Don’t allow yourself to get taken for a ride by the car dealership. Some dealerships will try to make you believe that you need a new car and you can use your refund as a down payment. The truth is that most times paying for repairs on your current vehicle is far less expensive than the cost (and aggravation) of purchasing a new car.
- Don’t ignore your debt. With rising interest rates, one of the best things you can do with your refund is to pay off debt. If you do this, in the long run you will save money by avoiding outrageous finance charges. Consider paying off your credit cards, paying off your car, or getting one payment ahead on your mortgage. By doing this you might also boost your credit rating.
- Don’t forget to save! Save your refund for college. Save for the upcoming holidays. Save up for the down payment on your house. Start or expand your emergency fund. What ever you do, save a portion or all of your refund if possible.
- Don’t think short-term. Tax refunds combined with lack of financial planning result in impulsive (often times reckless) spending. Remember that instant gratification leads to ongoing stress. This year when you receive your refund, think LONG-TERM.
If we avoid these mistakes, our tax refunds will be a tool to get a few steps closer to financial freedom, instead of a shovel that we use to dig ourselves into a deeper financial grave.
Need help filing your tax returns? The DC EITC Campaign provides free tax preparation and electronic filing services to low-income residents at twenty locations throughout DC. Visit www.dceitc.org or call 202-463-6211 to find a free service near you. Tax sites are open afternoon, evening and weekend hours from late January through mid-April. This year, file smart and save more.
