About now many are getting their tax returns. The key question for these individuals – what should I do with my return? This has baffled many for years especially since the financial crisis have devastated many. The conventional wisdom is to spend it on whatever you want. I can’t blame you; it was your hard earned money and you felt like you deserved that. On the other side, some say invest it. I can’t blame that reasoning because many 401k’s and IRAs were impacted greatly.
I am not here to say what you need to do but we have to look at why you received an overpayment. The reason why most received a tax return is that you were paying more than your fair share of taxes to the government which is not a bad thing. Your money is used for different services for our local and national government. The fact that you paid more to them means that you used less of your money during the year. The government took more and the return of your money was less.
The key point is to take control of your money. Your money is too valuable to give away. Your tax liability can change at any given time during the year. So the step that you may want to take in the upcoming year is to work with your tax advisor or accountant to determine how do you ensure that you are not getting a big fat refund on April 15. You want to be as close to a zero balance. You may want to adjust your withholdings on your W4.
So to answer the question should you invest or blow it? My answer would be to invest in you. You may have done this with your money if you had not given it away. So look at doing the following: create or build upon your emergency fund, pay or eliminate credit cards debt with high interest rates, buy something that you have been wanting (do it with cash not the credit card), do home repairs especially if you are utilizing energy efficient windows (you may get a tax deduction for the upcoming year) or put it toward a vacation that you were planning to take. Again investing is not bad when it is benefiting you. Look over your taxes and pay the right amount so that you can utilize the benefit of your money now than later.
Have a good day