Tax season is back. By now you’ve made all the Roth IRA and Regular IRA contributions for last year you can, and received your W-2s and hopefully all your charitable giving receipts. As you read this you may have filed already, be in the process of getting it together, or even dreading the task and putting it off until the last minute. The deadline isn’t until April 15th, but if you have all the paperwork, you may as well get it done; if you’re due a return the sooner you get it the better. Whether you think you are due a refund or not (especially if you owe money), be sure to file on time. There are penalties for not doing so and they only get worse the longer you wait.
Are you likely to receive a refund this year? Last year the average amount of refund was $2,708. Now, there’s two points about this that I think are important to discuss. First, if you are among those who regularly receive over $1000 back, then you may want to consider changing how much income tax is deducted by your employer. If you often find yourself barely making it through each month before the money runs out, then having an extra $100+ available can obviously help. Many people consider the extra tax paid to be a form of forced savings, but locking money away at 0% interest when your family needs it each month isn’t a great idea.
The second thing to think about if you are getting a refund is – what’s your plan for the money? Getting a check in the mail for $500 ,$1000, $2000 or more isn’t likely something that happens to you very often. This is a time to plan carefully. Many people no doubt use the money as a sort of “bonus” or treat for themselves. I can imagine the home theatre salesmen see at least some bump in their sales results around this time of year. Now, there’s nothing wrong with buying a big screen TV, provided it fits with your current financial situation; but many times there is a better use for the money. Should it instead be for home maintenance, car repairs, or debt repayment? If you are following Dave Ramsey’s Baby Steps program you can just add it onto whatever step you’re currently on. An extra thousand bucks can set up a beginner Emergency Fund, give a good push to a Debt Snowball, or if you’re far enough along, be an extra payment against your home mortgage principal.
If you have questions about the Baby Steps, either what they are or how you should be implementing them for your family, there is help available. You can get one of Dave’s books, find a Financial Peace University near you, or contact a trained Financial Coach. If you contact RKL Financial we offer free consultations to help you understand what Coaching is and how it can help you.