Patti Wooten Swanson, a UC Agriculture and Natural Resources consumer sciences expert, shares four recommendations that can help consumers make the best use of their tax refunds.
1.
Think before spending. While waiting for your refund check to arrive, make plans. Talk to members of the family about your financial priorities:
- Are you behind on mortgage or student loan payments?
- Do you owe money on your credit cards?
- Does the family need a new refrigerator?
- Have you postponed important dental treatment because you don't have enough money?
Plan how to spend the refund rather than simply heading to the shopping mall or electronics store when the check arrives.
2.
Use part or all of the refund to start establishing long-term financial security.
Lists of ways to use your tax refund typically include “save for retirement” among the options. You cannot go wrong if you save for retirement, but here are a few other ways that you can achieve financial security.
- Save for your children's college educations
- Deposit the check in a rainy-day fund
- Pay off credit cards that have high interest rates
- Pay for professional development classes that will help you earn a higher salary or increase your employment outlook – such as learning another language, finishing college, taking a class to learn new skills, such as management or new computer skills needed in your field.
3.
Do not use your refund to add to your debt.
Maybe you would like to buy something expensive that you have always wanted. But, if you use the refund to make a down payment on a large purchase – such as a flat-screen television, new bedroom furniture or a car – you have further indebted yourself and will have to make higher monthly payments going forward. Before making this purchase, consider whether your budget allows for another monthly payment.
4.
Do not throw away money by signing onto a scheme that provides the refund immediately.
Refund anticipation loans (RAL) charge you a fee for lending you money until the government sends the check. Why would you pay for this? Instead, file your taxes electronically and you will receive the refund in about 10 days. Enjoy the money that you have earned!