So you’re getting a tax refund? Good for you. I know a lot of folks like having that little – or sometimes big – windfall at this time of the year. It helps make up for the overspending from Christmas. According to personal finance expert and personal bankruptcy lawyer William Waldner http://midtownbankruptcy.com, “The average refund this year will be approximately $3,000.”
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One thing to consider before deciding on what to do with your refund is to analyze your withholdings and/or estimated tax payment situation. You obviously paid in more than was necessary, thus allowing the government to enjoy your money for the year rather than it being put to use for your own purposes.
Conventional wisdom dictates that you could have been making interest off the over withholdings. However, banks aren’t paying much these days so the amount of earnings is likely negligible. And for some, saving is difficult. Over withholding all year provides a means for creating a cushion. Whatever the case, it’s worth giving a few minutes thought as to whether or not you need to adjust your withholdings or estimated tax payments. Input from your tax professional and a financial planner might prove valuable in determining any adjustments and to receive guidance on the best course of action with the funds.
According to a report issued by the National Retail Federation survey, approximately 54.9% of millennials expecting a tax refund this year plan to deposit the refunds into their savings accounts.
“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF President and CEO Matthew Shay said in a statement on the NRF Website. “A check from Uncle Sam gives consumers the ability to pay down debt, add a cushion to their savings or splurge on a vacation or big-ticket item.”
The report also states, “Consumers have a plan for how they will use their refunds: 39.1 percent will pay down debt and 25.1 percent plan to use it for daily expenses. While 13 percent say they will splurge on a vacation, 10.5 percent plan to spend on a major purchase like a television or car.”
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According to Waldner, “An overwhelming amount of young men and women like to splurge on a new gadget or device, especially phones or tablets, mistakenly treating a refund as a bonus or payday, rather than part of their annual salary they already earned then overpaid in taxes. Men buy electronics, women buy clothing, accessories and jewelry, which is fine if you have plenty of money.”
But if you don’t, then Waldner feels that building up your emergency fund is a good move. But even better, he believes, is to “invest in something slightly riskier. Go to a financial advisor to find a good portfolio and turn it into something exciting.”
Other good ideas include saving up to buy a home or if you already own your residence then you could make improvements that increase its value.
Waldner has analyzed the benefits of putting monies into a college savings plan for your children but in the final analysis, does not feel there is much benefit in that. “It’s important to understand why your child wants to go to college. So many kids going to college rack up huge debt, yet cannot find a job once they graduate. Starting your own business or getting into a profession that does not require a degree may be a better course of action.”
Putting the monies into an emergency fund rather than a college savings plan from which non college distributions can be penalized is a far better move. You can draw upon those funds to help if your child decides to go to college after all.
Waldner feels that “investing in your career by taking skill enhancing courses or freshening up your work attire would be a great personal investment of your tax refund.”
He adds, “A tax refund shouldn’t mark your foray into angel investing. Avoid loans of investing your refund into the ventures of your family and friends, no matter how promising they look.”
After all, it’s your money. What about your dreams? Those should come first.