If you ﬁled your taxes early this year, and are eligible to receive a tax refund, you may soon receive a nice-sized check from the state government. (In 2012, the average Georgia tax refund was $640, according to the Atlanta Journal Constitution.)
And while it can be tempting to go on a shopping spree if you are one of those due a refund this year, you would be wise to show some self-restraint and instead, find practical, responsible ways to use this money:
If you are carrying debt, consider applying your refund to pay it down, which will help you avoid having to pay additional compound interest. Consider paying down credit cards, car loans, student loans, or even prepaying your mortgage. Having trouble deciding which to pay off ﬁrst? Start by paying off the loan with the highest interest rate.
It may not seem that exciting now, but you’ll appreciate a savings nest egg when you retire, especially if you put your money into a tax advantaged plan, such as a traditional IRA or Roth IRA. Also, if you plan to help your child pay for college, consider placing your refund money into Georgia’s state-sponsored 529 plan.
It’s important to be prepared should the unthinkable happen: unemployment, illness, or even disability. By having an emergency fund, you’ll be ﬁnancially prepared if you are unable to earn an income for a length of time. Aim to have at least six months worth of expenses in your emergency fund.
By making home improvements, you could be making an investment that potentially results in an increase in property value, as well as improved living conditions. Plus, Georgia homeowners have an array of financial incentives–sales tax exemptions, tax credits, etc.–that could cut the total cost for some home improvement projects.
Would you like to earn more money (who wouldn’t?)? Then consider using your tax refund to invest in your education. Consider going to college or enrolling in a training course that will make you more marketable and allow you to take the next step in your career. You might even be able to deduct your education expenses on next year’s taxes.
If you know that you will have a major expense in the coming year, such as planning a wedding, consider setting aside your tax refund for that purpose. It can help soften the blow when it comes time to cut the check.
Consider setting aside some of your refund money to help those who need it most. Remember, charitable donations are tax deductible, so you can deduct your gift on next year’s taxes. Do some research on Atlanta charities to identify causes that you’d like to support.
Is there a country you have always wanted to visit? Is there something you’ve always wanted to learn? Have you always wanted to start your own business? Take this opportunity and use the money to take the next step toward that dream.
A tip: If you received a large refund this year, consider making an adjustment to the withholding allowances on your W-4 with your employer. This will increase your take-home pay and thereby prevent you from making what some like to call “interest-free loans” to the government in the future. Yes, it can be nice to receive a large check in the mail each year, but you may wish to put this money to use during the year, rather than sending it to Uncle Sam for temporary holding.
What do you plan to do with your tax refund?