March Financial Fitness Challenge�Seize Tax Refund Opportunity

Getting a nice tax refund is kind of like winning a minilottery. And this might surprise you, but I think it's fine to use part of it for an indulgent expense. Especially if you've been sticking to a Spartan financial routine for many months, this is a nice opportunity to relax that standard a little bit. That could mean a meal out at a place that's usually too rich for your budget, a weekend getaway, a designer handbag�well, you know what trips your trigger better than I do.

Now�and you might expect this part�there are some caveats:

Do you have a sizable credit card balance? If yes, you get instant returns by paying it down with your tax refund. For example, if you're paying 18% on a credit card account, that's your effective "dividend" for any payment you make.

Is your emergency fund on life support? If yes, give it some therapy by depositing a good part of your refund. Keep improving its health by setting up automatic transfers from your checking account.

Do you owe money to a friend or family member? You know that this relationship is deteriorating until you pay back what you owe. Tax refund to the rescue.

Have you been neglecting basic car maintenance to save cash? It's common to put off any expense you can when you're trying to save money, but your safety�and your investment in the vehicle�is at risk if you don't keep it in good running order.

Are your living conditions unsafe because you, for example, didn't want to spend money on an annual furnace inspection? Like car, like house: It's a false economy to let basic maintenance and safety slide in the name of saving money. Is saving some money now worth a carbon monoxide poisoning later?

You've probably been telling yourself, "As soon as I get a little bit ahead, I'm going to ...." You fill in the blank. Use your tax refund to address postponed priorities.

Tell us how you plan to use your refund in this month's Snap Survey.

New theme for IRS

Now let's consider why you're getting a refund in the first place. It means you've elected to let the IRS (Internal Revenue Service) have that money for more than a year before giving it back�sans dividends to you of any kind. It's forced saving, true�and building savings is a worthy goal. But there's a much better way.

Let's reframe this. Instead of letting an IRS refund be your savings program, tell yourself I'd Rather Save: IRS. Use the calculator at the IRS Web site to help you determine how much you can adjust your withholding to put more money in your accounts each paycheck rather than getting a lump sum once a year. You can estimate but you'll get a better result if you use your most recent pay stub and income tax return to help you input a few numbers.

Financial Fitness Challenge

The people at your credit union bring you this Web site and other tools to help you optimize your financial resources. In 2010, the Financial Fitness Challenge will continue to look at ways you can make better financial habits no matter what condition the economy is in.

And each month we'll randomly select five winners to receive $50 Visa gift cards; we'll choose each month's winners only from that month's entries, so enter often. Remember to register for the Financial Fitness Challenge.

ST
Susan Tiffany, CCUFC
[email protected]

Published March 3, 2010