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  • Financial Planning, Taxes

    Understanding What a Tax Refund Really Is

    Each year millions of individuals and families go through the ritual of filing their taxes and waiting anxiously for their refund. But do they really understand that getting a big refund means they’re “doing it wrong”, as the Wall Street Journal’s Carolyn T. Geer puts it? And she’s absolutely right about that.

    Here’s what a tax refund really is!


    Millions of Americans appear to have no understanding of what a tax refund actually is. Receiving a refund means one thing and one thing only — that you overpaid your taxes little by little over the course of the last year. And the government doesn’t have to pay the overage back until you file your taxes sometime in the first 3-1/2 months of the next year. They got to use your money for a whole year for free! It’s like a friend asking you for $50, and you insist he take $100 instead. “You can pay me back next year, Sammy”! And did the government pay you back with interest? Nope. The loan was just a nice gift from you — an interest-free loan to Uncle Sam! You think they would let you owe them for a year with no interest, like when you underpaid your taxes? Right. They’ll not only charge you interest, but penalties as well.


    Even worse, here’s what happens when you finally get your money back …

    • You’ll lose a little more due to inflation because a dollar today will be worth a little less than a dollar next year.
    • Face it — you’re probably going to spend your refund. Most retailers are counting on just that and start offering all kinds of deals on “stuff” as soon as tax season begins. They’re just dying to get some of those dollars coming back to you and millions just like you!


    Don’t be a tax season baller! Check out these 5 Ways to Put Your Refund to Better Use.


    Here are a couple of very good reasons to try to make your taxes balance out during the course of the year:

    • It’s your money! Why should you wait for it? You could be putting the overage you’re paying to the IRS into a savings account, were you could be earning interest.
    • You probably need the money in your paycheck, especially if you’re living paycheck-to-paycheck, as many Americans do. The extra money in your weekly or bi-weekly paycheck can really help make ends meet all through the year!


    If you’re getting a big refund year after year, it’s time to adjust the withholding on your W-4 form to pay less in taxes and get more in your paycheck. Your goal is to get as close to zero as possible. You don’t owe the IRS anything and they don’t owe you either!


  • Budgeting, Financial Planning, Investing, Retirement, Taxes

    5 Ways to Put Your Tax Refund to Better Use

    Expecting a tax refund?  You need a good plan on how to spend the money. Of course, you may want to treating yourself “as you deserve,” but remember that the refund is not a bonus check.  Give the check a purpose by considering your financial situation and determining your top development needs. Below are five priorities to help you put your tax refund to better use and build towards greater financial security in future.

    1. Finance your emergency fund

    If you do not have an emergency fund, you need just one major expense to send you down to financial disaster. A good emergency fund is one that contains three or more months of savings in a readily available interest bearing account. Saving such an amount requires months or years of sacrifice, but a refund check can boost the fund, giving you a bit of financial security.

    2. Pay off a high-interest debt

    You can use your tax refund to pay off a high-interest debt. For instance, pay down that credit card balance. Depending on the interest rate, you can save up to 20% every year in interest on any balance that you clear. Use your refund check to create a debt elimination program that tackles those payday loans, title loans, high-interest student loans, and credit cards.

    3. Save for retirement

    You can use your refund to strengthen your financial position further by putting your check into an IRA or investment account. If you do not have one established, start on! Many institutions today may it a simple process and can all be done online.  You may be eligible for a Roth IRA if you meet certain income requirements defined by the IRS and do not have an employer-sponsored retirement plan.

    4. Invest in Real Estate

    If one of your goals is to own your home imagine how far a tax refund check would go towards a down payment.  Already purchased your home?  Consider paying down your mortgage early.  Use your tax refund to pay down the principle on your mortgage. You will save on interest payments and pay off your mortgage earlier.  Your tax refund can also go towards purchasing a second property that you can use to generate rental income.

    5. Refinance your mortgage or make home improvements

    If you already own your home you may want to look into refinancing your current mortgage to get a more favorable interest rate.  Consider using the tax refund check to pay the closing cost on the new mortgage and you will save on interest.  If you are comfortable with your mortgage rate, consider upgrades like a new roof, kitchen or bathroom upgrades, or new energy-efficient appliances to lower your electricity bills. Some of these improvement projects will not just make your home more comfortable but can also increase your home’s value.



    Remember, planning for your financial future does not have to be an all or nothing game.  You don’t have to be completely dedicated to debt elimination that you neglect your emergency fund or retirement.  Working with a financial consultant can help you balance your goals.  If you need help planning and managing your finances Schedule a Free Consultation with Abena today.