Want to get paid twice? How to have your Tax Refund work for YOU!
First, off, let me say, I am a fan of adjusting your W-4 to accurately reflect your actual deductions. I mean, getting a tax refund is great, but isn’t getting a bigger paycheck all year even better?
If you are getting an income tax refund, what are your plans for the money? Here are some ideas that will extend your refund for extra mileage:
Paying off debt is a great way to have your tax refund work for you. Think about paying off overdue bills, loans or credit cards first. If you have high interest debt, you are eroding your wealth potential! Not only will you be using your tax refund to decrease your debt, but you will be decreasing your interest as well! Double whammy.
You can also take that refund and pre-pay your mortgage. Using this strategy, you can pay off the principal on your mortgage more quickly and save interest payments over time. You are potentially saving yourself thousands!
Do you have high interest student loans or car loans? Using your refund is an awesome way to save on some of that sluggish interest. The quicker you can pay down the balance, the less total bill you will have over time. Make sure the payment goes toward the principal.
If you are smart and savvy and debt free, pay yourself directly. Put your refund into savings, and not all savings are created equal! Make sure to know where you are saving. Contributing to an IRA will give you a step up at retirement. A Traditional IRA will give you tax breaks now and a Roth IRA gives you tax breaks when you retire. Add a little padding to your financial future now.
Do you have children that will attend college someday? Colorado offers 529 Plans with state tax advantages. 529 Plans are a great place for a surprise windfall, and this can get your college savings jumpstarted.
Some other savings options are saving in any form of high interest savings accounts, or maybe you have a favorite company and you want to buy a share of their stock? This is a great way to make your refund go further because now you have an investment!
Of the off chance that neither paying debt nor saving gets your heart singing, hold on! What about an emergency fund or vacation fund? Both of these options are making your money work for you, rather than the other way around. They also provide peace of mind and stability for life events at a later date. Another great option is to invest your refund directly in your own efforts. Start or invest in a business, take a college course, learn a new technical skill or advance your career!
How about a little bit of everything? If I have gotten your mind swirling, don’t fret. You can piecemeal your solution and use your refund for all or some of these options. And lastly, if your heart is set on indulging your material side, find that amazing electronic or awesome pair of shoes, and wait 24 hours. Often, the impulse buy is not what we are looking for.
When we are truly fulfilled with our life, the impulse item is no longer appealing. When we are helping ourselves by maximizing our purchasing power, we can truly enhance our lives, and isn’t that the definition of our money working for us?
Bio: Rachel Namoff is a managing Partner at Arapaho Asset Management and a leader in financial literacy. Rachel lives in Washington Park and enjoys longboarding in the summer and skiing in the winter with her two daughters.