A lot of people in America have a name for their biggest single paycheck: “Tax Refund.”
Tax refunds often help families move up the economic ladder when they use it to pay down debt, help purchase necessities, or increase disposable income (savings). On the flip side, tax refunds can have minimal impact when used to purchase things that have little value, or worse, have no value.
Peoples Bank wants you to be economically stable. We want you to feel good about your potential to thrive financially, and we provide tools and information to help. This blog post is about using tax refunds wisely.
Why save money when you have it to spend?
The purpose of money is, at the most basic level, to protect you and your family. For maximum protection, you must be good at knowing when to spend — and when not to spend.
Tax season is a great time to think about how to best use your tax refund. For a lot of people, especially low- to moderate-income people, it is a good idea to find a way to save some of it. It represents one of the biggest deposits of the year, which means it represents one of the biggest economic decisions of the year.
The more money you have at your disposal throughout the year – not just when you get your refund — the better protection you have against setbacks such as unexpected expenses or job loss that can happen at any time.
How to plan for saving some of your tax refund
To save money the right way, you need a budget. Knowing what you plan to spend is the first requirement for knowing what you can save. Your situation may require you to pay down significant debt; saving your refund may not be the best approach. Or perhaps you can hold back a portion of the refund to save. Only a budget can tell you for sure. We have written several posts about budgeting. (Check out how to prepare a personal budget and the steps on preparing a budget posts.)
The IRS allows you to direct some, or all of your refund to a separate account to help you save. Form 8888 is the federal form. Most tax preparation software and professionals make this option clearly available.
The best advice we can give you is to think about it carefully and ask your community banker what resources are available to give you sound (and affordable) counsel.
By the way, word on the street is there may be a tax refund delay in 2017. So, factor that into your thinking!
Here are some links that you may find helpful:
- America Saves Week
- Making the Most of Your Tax Refund
- Free Tax Return Preparation for Qualifying Taxpayers
- Peoples Bank Savings Calculator
- Peoples Bank Debt-Payoff Calculator