Money Tips: Income Tax and Refund Checks

Although that may have been something you experienced during your college years, the same applies to the beloved Income Tax payday.  Adults young and old await the day in which they can have some extra dough in their pockets.  We file our taxes extra early so that we can be one of the first to cash that check, but before you decide to completely blow your refund and income tax checks, educate yourself on what they are and how to properly use them.

Do you really know what a refund check is and why you’re receiving it?  When you applied for FAFSA, you were granted monies based off projected tuition costs related to the college of your choice.  These monies came in the form of loans, grants and scholarships as mentioned above.  When the granted sum of money exceeds the costs related to school, you get something back in the form of a refund check.

If you work in any capacity, you should notice that a portion of your check goes toward state and federal taxes.  Based on how much you make a year, your spending habits, who you claim on your taxes, etc., you may be entitled to a little somethin’ somethin’ from the government (state or federal).  Although some of us are not as fortunate to be granted such a luxury, others of us do find ourselves getting a lump sum of money.

I didn’t get my first refund until junior year in college, and it is probably best that it happened that way.  I was too financially immature to handle a check of that caliber.  Additionally, I had seen so many people blow them and end up broke again, that I knew exactly what NOT to do with that money.  Let me tell you how I handled mine:

First, I found a financial adviser.  No, I did not go pay for one, but I used my resources to land the bomb.com financial adviser – my father.  Since he has been in banking for more years than I have been living, I found it easiest to talk to him (after all, when I needed extra cash I turned to him anyway, and we all know Dad will ask you exactly how you plan on using it before he forks it over).  He gave me legit advice, as if I were a client and not his daughter.  He spoke to me about the risks and the repercussions of not spending the refund wisely, and the priorities I should consider spending it on.  He planted the seed on how to devise a plan for that money.  Maybe your father is not into banking, but there are ways to get free advice.  If you are on campus, you can ask an instructor in the finance department questions you may have regarding where to start.  They normally don’t charge and are excited to teach you.  Additionally, libraries are full of information, as well as the internet.  Reading is, in this case, really FUNDamental.

Used a portion to pay off debts.  Remember those debt woes I mentioned here?  Well, I used money acquired through my refund to lower them or pay them off outright.  What’s the point of having money handed to you and your net worth is in the negative and just blow it?  If I was going to get out of debt, I had to start some where and since I was not in a full time position paid off a salary, I did what I needed to do.  In the end, that was one of the best moves I had ever made. *pat on back*  Had I not done that, there is not telling what type of debt I would be in now.

Invested it.  Because most refund amounts are in excess of $1,000 (or at least mine was), I took the majority of the money (around 70%) and invested it.  I invested in my future, particularly in my post graduate account.  I knew I would need a little money to live off of until I landed my career job, so that money definitely helped me throughout my transition period.  Whether you invest your money in a savings account, money market account, or in stocks/bonds, investing your money in something will allow for it to be protected and grow!  The more you invest, the higher interest you will earn!

Those were some things I did, but here are some things I DID NOT do:

Ball out of control.  It’s nothing worst than balling out in the mall and club, taking lavish trips and doing the absolute MOST, than to realize that when the funds are gone you are eating oodles of noodles and wishing you had a few bucks to get a haircut and pay your rent.  PLEASE, spare the embarrassment and don’t paint the picture that you “got it like that”.  We all know you don’t.  We saw you last week asking the bum for some change.

Loaned it.  Probably not ever going to happen – yep, nope, don’t even ask.  Why would I loan you money when I am barely making it on my own?  If you are loaning these types of checks, realize that 1) you’re probably never going to get it back and 2) you blew it.  My parents would never ask me for that check unless they REALLY needed it, and knowing them, they would pay me back with interest.  I know everyone’s financial situation is different, but if you cannot afford to give someone money when you are living day to day, do not plan to give them that refund check and get it back.  That’s money blown.

Whatever you decide to do with that money, realize that those are financial decisions that can make huge impacts in your life.  Educate yourself, consider the consequences, and make moves that will generate revenue and not land you in the ticket line for a free meal.