March 29, 2013
Financial pro: Plan to put tax refund to work for you
The Internal Revenue Service, or IRS, reported that it expects 147 million individual 2012 tax returns to be filed. It also estimates about 75 percent of taxpayers who file will be entitled to a refund.
While the popularity of direct deposit has simplified the tax refund process, Elizabeth Kiss, Kansas State University Research and Extension family resource specialist, encourages taxpayers to consider using the refund to improve their financial situation before rushing to spend it.
A tax refund often will be the largest single sum of money a taxpayer will have access to during the course of the year, and that’s why it’s important to take time in deciding how to put it to work for you, said Kiss, who noted that a tax refund is a sign that withholding from earnings (for taxes) has exceeded a taxpayer’s liability.
While some who have difficulty saving look to an annual refund as forced savings for a specific purpose, Kiss encouraged taxpayers to review their saving and spending habits and decide whether they want to continue to provide a no-interest loan to the government, or meet with their employer’s human resources specialist to adjust withholding to match their tax liability and have more money in their budget throughout the year.
She also advised reviewing personal finances, including earnings, account balances, assets and liabilities and then, identifying short-term (0 to six months), medium-term (six months to two years) and long-term (more than two years) financial goals.
Such goals might include paying off a balance on a credit card or loan, saving for a down payment on a more dependable vehicle, establishing or adding to an emergency fund for unexpected repairs and expenses.
A weekend get-away or family vacation also might be a goal, said Kiss, who noted that having a goal in mind — and being able to picture it — can inspire saving, and advised placing a picture of your goal on the household bulletin board or front of the refrigerator as a reminder.
She also suggested carrying a small notebook to track expenses for at least a week.
Tracking expenses for two to four weeks to review saving and spending habits from paycheck to paycheck and during billing cycles (such as utility, loan payments or credit card bills) also can be helpful, she said.
Once aware of where the money is going, people often decide to trim discretionary spending and direct funds toward financial goals, Kiss said.
“Saving is a choice — and an essential foundation for financial security,” she said.
More information on building money management skills is available at K-State Research and Extension offices throughout the state.