Getting a tax refund may seem like free money, but it’s not. A tax refund is money you worked hard to earn last year and overpaid to the government. So, before you let it burn a hole in your pocket, think about putting it to better use.
Tips to maximize your tax refund and stay on budget
As opposed to splurging with your refund, here are seven smart options to put your tax refund to better use – and help secure your financial future:
- Speak to a Military OneSource financial counselor. Military OneSource provides free access to financial counselors prepared to help service members and their families with general financial questions, from using a refund toward a down payment on a house to long-range financial planning. Call 800-342-9647 or live chat.
- Pay down your highest-interest credit card debt. Take this opportunity to pay down your debt and lower the overall amount you end up paying your credit card company. Or make an extra car or mortgage payment, if there is no prepayment penalty, and enjoy 100% ownership of your house or your car one month earlier.
- Build up an emergency fund. An emergency fund is not your retirement nest egg. Set up a savings account designed to pay for unexpected expenses like a sudden car repair or appliance replacement. Start with a goal to save $500 or $1000 for emergencies but aim to save three- to six-months’-worth of living expenses.
- Check your budget plan. This is a good time to check your budget and see if there are any holes you need to cover with your refund. Make sure you are designating a certain percentage of your income for retirement and potential college expenses like the Thrift Savings Plan or Roth Thrift Savings Plan.
- Donate to a charitable organization. Spread the benefit to a cause you hold dear. You can also claim a tax deduction when you file taxes next spring. But be sure to save the receipt.
- Invest in yourself. Have you always wanted to take a certification class, learn a new skill or earn a college degree? Consider using your refund to boost your skills.
- Save money on next year’s return. Instead of spending money on commercial tax preparation software, use MilTax. Designed exclusively for the military community, MilTax software and consultant support is 100% free, with no hidden surprises.
After all, you might as well try and earn some interest on that money instead of just banking it at the Internal Revenue Service. Better yet, consider taking that extra money every paycheck and invest it directly into your retirement or college savings accounts.