By Mari-Alice Jasper, Fort Campbell CourierFebruary 2, 2018
FORT CAMPBELL, Ky. -- With tax refunds expected to be available starting Feb. 27, many people are already thinking of ways to spend the extra money coming their way.
Although the money may be burning a hole in some peoples' pockets, Diana Rieger, financial counselor at the Milton A. Lee Soldier for Life center, said saving should be the first thing on everyone's mind. Fort Campbell Soldiers and their Families can expect deductions anywhere from $500-$11,000 depending on multiple variables such as their dependents and other tax breaks, she said.
Although a magic number does not exist, Rieger said people should strive to skim at least 10 percent off the top of their refund and deposit it into a savings account. Michelle Benjamin, accredited financial counselor at the SFL-TAP Center, suggests putting the money into an interest-bearing savings account, which will help the money "grow" faster than a regular savings account.
"You should come here and see us before you spend a single dime of your tax refund," Benjamin said. "That way we can come up with a clear and concise financial plan that is going to help you. You have to go off of the adage of paying yourself first."
A financial plan should be SMART -- specific, manageable, achievable, relevant, and on a timetable, Benjamin said.
For comfort, everyone should strive to have enough money in their savings account to cover their expenses for three months. Although that goal is unlikely for most people, Benjamin said it is better to start saving a small amount of money than to never save at all.
After setting aside savings, Soldiers should consider making financially sound decisions with the remainder of their refund. Adding money to a retirement fund is an easy way to invest in the future, especially when using money that is not coming from a regular paycheck. Extra money can be used to purchase a Roth or traditional IRA, which sequesters the money away.
Many young Soldiers today do not invest in retirement because they feel like they are too young to worry about it, Benjamin said. If you are old enough to receive a tax refund, you are old enough to put money away for retirement.
"My kids are in their 20s and 30s and I know they aren't saving like they should be," Benjamin said. "During the [financial class] when I ask the Soldiers if they are investing in their Thrift Savings Plan, maybe five people raise their hand. Some people don't even know what I'm talking about."
Families can use their tax refund to get ahead on their mortgage, by prepaying or making an extra payment, Rieger said.
"It can make a huge difference in your life," she said. "If you can get the principal down, you can get the interest down and get the bill knocked out more quickly. Making that annual extra house payment can take years off of the note."
Using a tax refund to attack student loans is another quick and painless way to cut down on debt. Even if the loans are in deferment, making small payments or paying a lump sum can help.
"Even if it's just $50 a month you are going to be doing yourself a favor in the long run," Rieger said.
By deferring student loans for an extended amount of time, they can easily double or triple with interest, Benjamin said.
"Doing anything is better than doing nothing," Benjamin said. "Reach out to your student loan agency and start trying to consolidate to see if you can start dropping those interest rates. Then start making automatic payments. Student loans are a debt you have to pay. You can't include it in a bankruptcy. If you do not pay it, [the government] can come after your taxes. If [the government] can't take it from your taxes they can take it from your Social Security. At the end of the day, they are going to get their money because it is a federal loan."
Although having a financial plan in place is necessary, it's essential to set aside money for less responsible purchases, Rieger said. After making financially sound choices, now is the time to loosen up and do something fun.
"Going on a vacation is good for the soul," Rieger said. "If your soul is good then you are going to be in a better frame of mind to make more educated financial decisions. When you are thinking clearly you aren't emotionally spending either."
"You don't want to just live to work, sometimes you want to work to live," Benjamin said. "If all we do every single day is wake up, go to work, come home, take care of the Family, go to sleep … it gets repetitious."
Vacation packages are a big help financially, especially if booked well in advance, Benjamin said. She suggested traveling off-season to save money.
"Vacations are also a great incentive to save, especially if you can start making payments through a plan," she said. "That is going to help get you through the stress and monotony of work. Sometimes you just need a break."
When planning a vacation, Benjamin said many Soldiers use the money from their tax refund to take their Family back home.
"A lot of times people spend more money doing this than they would going on a real vacation," she said. "That's the No. 1 thing that I see from our Soldiers. They say it's a vacation, but it's really not."
Some of the expenses during a trip home may include buying groceries, paying Family bills, repeatedly paying for expensive Family dinners and buying gifts. Benjamin said this is frustrating because all of the money is spent and they have nothing to show for it.
Instead of nickel and diming their tax refund, Rieger encourages Soldiers to spend the extra money on a memorable experience.
"Don't just go out to eat. Do something that is going to leave you with a lifetime memory. Really get your money's worth," she said. "If you've always wanted to go skydiving, do it. Now is your chance to buy those front row tickets to a concert or baseball game."
Some people are more eager to spend their money on a new television or high-tech computer. A modest upgrade is an appropriate way to spend part of a tax refund.
"Make sure it is reasonable," Rieger said. "After you have saved and set a financial plan in place, you can think about upgrading. You shouldn't spend anywhere near half of your remaining refund on an upgrade. The smaller refund you get, the less money you should spend on an upgrade."
From personal experience, Benjamin recommended taking this opportunity to replace outdated home appliances to make them more energy efficient.
"Old appliances can be sucking you dry when it comes to that electric bill each month," Benjamin said. "Slowly start replacing your appliances because it can reduce your bill. It may be expensive upfront, but it's going to be helping you in the long run."
It can be tempting to spend extra money on frivolous things, but making responsible decisions now can make a big difference in the future.
"Set a financial example for your children," Rieger said. "They are noticing. Work hard to make healthy financial decisions, and then play hard when it comes to enjoying the benefits."
SMART WAYS TO SPEND TAX REFUND MONEY
•Create an emergency fund
•Seed the college fund
•Invest in the stock market
•Start a business
•Buy life insurance
•Pay down credit card debt
•Go back to school
•Fund your hobby
•Treat yourself to little luxuries
•Pay it forward
•Invest in your well-being