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Whenever you receive a tax refund, it’s smart to be proactive about how you will use it. Don't let it sit in your debit/checking account tempting you. Put some thought into how the extra money will serve you best.
Here are a few Do's and Don'ts to think about!
Do: Pay down debt
Consider earmarking 20% or more of your refund toward paying down high-interest debt you may be carrying. You’ll save a ton on interest and you’ll be finished with this debt sooner than you planned.
Don’t: Lend out your refund money
Lending all of your refund money is not the best idea. You might not see that money for a while. And, if you do, it’ll likely be in small repayments instead of the large chunk of cash you have now. This will limit what you can do with it.
Do: Start investing
Use this opportunity to start investing.
Say you receive an annual refund of $2,800 and invest this money at 6% interest. If you continue investing this amount each year, you’ll find yourself with approximately $250,727 in 30 years’ time.
That’s making your refund work for you!
Don’t: Invest in a low-interest account
Don’t be lazy about saving your money. Keeping all that cash in a low-interest savings account or an ordinary checking account may be beneficial for an emergency but will dramatically decrease its growing power. If you need help deciding where to invest or how much to put in an emergency fund contact Duke Credit Union where a member service representative will be happy to help.
Do: Invest in yourself
Advance your career and increase your earning power by using your tax refund to pay for a work-related conference, additional training in your field, or for learning an entirely new skill.
Don’t: Spend it all on impulse buys
Don’t spend your entire refund without planning or you’ll be setting yourself up for disappointment later.
Do: Reward yourself
It’s OK to celebrate with one purchase you’ve been eyeing throughout the year. Weigh any debt you are holding when making this decision.
Don’t: Receive your refund on a gift card
Many tax software programs offer the opportunity to get refunds via gift card. If you’re offered this choice, opt out. You always stand the chance of losing the card, and it limits the ways you can spend your refund money.
Do: Donate to charitable causes
The bonus cash in your pocket gives you the opportunity to give back to the community in ways you might not be able to afford throughout the year.