Whether Refund or Rebate—Make Wise Use of That Windfall
by Candace Bahr and Ginita Wall, CPA, CFP®, CDS

If you are one of the American taxpayers expecting a double windfall this spring, both a refund on your 2007 taxes and the economic stimulus rebate of $600, guess what?

You have a double responsibility to make that money count for your financial life. Maybe you’ve always treated a tax refund as your annual fun money, and maybe you’re thinking about the coming rebate in the same way.

We know Uncle Sam is hoping you’ll rush right out and spend, spend, spend when the money arrives. Instead, read on for ways to make sure that extra income serves your best financial interests:

1. Any money that arrives from the government is, after all, your money. A tax refund is money Uncle Sam borrowed from you (he keeps the interest) and he is simply paying you back. So put aside some of the money for your personal pleasure (that’s some of the money—perhaps 20%). Spend this money on something you can really enjoy—something beautiful, useful, or a memorable experience.
   
   
2. Now decide where the other 80% of your windfall should go for your prosperity and peace of mind. Number one possibility is paying down credit card debt. You can use the money to jumpstart a debt reduction plan. Pay down the card with the highest interest rate. It will boost your self-esteem and confidence in your ability to defeat debt.
   
   
3. If you don’t have credit card debt, pat yourself on the back. Instead, you can use your windfall money to set up a cash emergency fund. This is money for a time when you need to pay for something you or your family really needs. Having an emergency fund gives you a great feeling of security and reduces your dependence on credit cards to cover unexpected expenses.
   
   
4. If you have your emergency fund in place, use the windfall to increase your retirement plan contribution at work. If you don’t have a retirement plan at work or you are already contributing the maximum, use your money to contribute to a Roth or traditional IRA.
   
   
5. And if you already have all of these vital financial bases covered, consider the great satisfaction of giving to charity. The pleasure of donating to a cause you believe in and making a difference in the lives of others can’t be measured. You’ll get a fine dose of happiness for your money and a tax deduction, too, for your charitable contribution.

You’ll find many other helpful tax tips in the booklet
150 Ways to Save Taxes Through Life’s Transitions.