By the time you read this, the tax deadline will have just passed and our Centralia, IL tax office will be taking a long, deep breath. (Serenity now!) These days have been a whirlwind of activity for us here at Bills Tax Service, and not just because of tax season.
The turning of the season signals a shift into higher gear for Centralia, IL area families as we all work through spring sports and activities, the end of the school year, and prepping for summer. (Cue the invites to graduations, spring concerts, open houses, school fundraisers, weddings, family picnics…)
We’re all itching for reliably warmer temps and a reprieve from the heaviness of the world around us, and it’s a great temptation – especially this year – to take that big chunk of cash that Uncle Sam just handed you and spend it on whatever will divert, distract, gratify, or fulfill.
But it’s part of my role as a trusted Centralia, IL financial adviser in your world to say: this is no time for frivolity. Let me explain…
(And in case you have already “ignored” this advice … don’t fret. We’re still here for you.)
How Centralia, IL Taxpayers Can Wisely Spend A Tax Refund
“The waste of money cures itself, for soon there is no more to waste.” – M.W. Harrison
The big windfall for many taxpayers this time of year seems like a gift from Uncle Sam, but blowing your federal tax refund on a big-ticket item can be a big waste of this infusion of cash. (And there was nothing “free” about it for you, by the way, which we’ll get to in a minute.)
A lot of Centralia, IL families get – and depend on – a tax refund every year. The IRS says this year’s average refund is more than three grand.
What do most folks plan to spend that cash on? A recent survey showed about half plan to save it – but a fair number also said it’s going to be eaten by inflation or spent on travel.
We’re not saying that getting a change of scenery is foolish – especially after the last couple of years – but such a pot of found cash warrants a little more thought in this inflationary environment. Material stuff like a new TV or a car you don’t need won’t improve your financial situation, not to mention that such items depreciate over time and you just have to replace them down the road.
It will rain someday
These days, it might be best to improve your financial situation just for the peace of mind. Make a plan for that new money.
You’d probably think of a bank first. But you should realize that a standard checking account nowadays usually offers zero return. If your bills are covered, yes, your friendly local branch can be a good place to park extra cash. Beats your mattress.
But all parking is temporary. Cash that’s as handy as your debit card can evaporate quickly with meals out or a few trips to your favorite store.
One of your best first uses for a tax refund is an emergency fund. About one in four people don’t have one – and we know it’s not as fun as the latest Xbox One, but a financial buffer against life’s ill winds can come in mighty handy when you need it. In these days of inflation and economic uncertainty, your emergency fund should be a higher priority for your refund cash than even your existing debt. Shoot for six months’ living expenses, at least – nine of you’re the sole breadwinner.
Debt doesn’t take a holiday
After an influx of cash, the smart cookie starts thinking about whittling their debts. For many, this means going after high-interest credit cards.
Think about it: You pay a lot for this credit, and the balances on your high-interest accounts build up fast, making the stuff you buy more expensive. Chip away at this debt first and you’ll do your wallet and your credit score a BIG favor.
Speaking of debt, bad as it is now, you’re certainly not going to want it in your golden years. That’s why fueling your retirement accounts is the next good move with your refund money. You probably already do slow-drip contributions to an IRA, the kind of saving that offers compound growth through investing.
Socking away a large lump sum, though, does more than make you happier when you look at the balance a month from now: Done in the right market conditions, it offers better growth since you invest a lot at once, allowing for a bigger investment that has more time to grow.
And of course student loans are one of the worst kinds of debt right now – the average loan load is almost 40K – so anything you can do to keep that down for your child or another prospective student is a great use of cash. Think about beefing up somebody’s 529 education savings plan. The money grows tax-free and is even free of tax when it’s withdrawn for qualified education expenses.
You can also set up an ABLE account (that’s “Achieving a Better Life Experience”), another tax-advantaged savings plan, this one for people with disabilities and their families. Again, growth is tax-free and so are withdrawals for qualified expenses.
And about next year…
A word of advice: Yes, it’s fun getting a bunch of cash from Uncle Sam, but it also means you gave him an interest-free loan for up to a year. Adjust your paycheck withholdings now to make sure the loan you give the government next year isn’t as big.
We can help you determine what that should look like.
Need help making that adjustment, or any others? Let’s get a time on the calendar:
Because we want you to be prepared for the future, whatever it may bring.
Here for you,