Tax season is over and if you were paying attention when you filed your taxes, you probably noticed that you (hopefully) qualified for a tax return! So why is the government giving you money, how long will it take for you to get the money after paying taxes, and what should you do with this extra cash?
Let’s check it out and answer these questions.
What Is a Tax Return?
If you’re new to this whole “being an adult” thing, and have no idea how taxes work, how to pay them, and what “filing taxes” even means, don’t worry, we have your back. Check out this article that briefly explains taxes, and keep reading to learn what you need to do to be a successful adult!
Let’s say you make $10 an hour and you work a typical 40 hour week. Each week, you’d make $400. But that’s not how much you get to take home. That’s because the government takes taxes out of your paycheck before it even makes it to your bank account.
Sometimes, your state and federal government take out too much. If they do, they’ll realize it when you file your taxes and pay you back how much they owe you.
Keep in mind that the opposite is also true. If they don’t take out enough for taxes, instead of having a tax refund, you’ll have to pay a tax bill in late April.
So that’s where this magical money is coming from. So how long after you file your taxes can you expect to get your tax return?
How Long Does It Take to Get My Tax Refund?
This question doesn’t have a perfectly straightforward answer. It depends on how you filed your taxes. If you filed your taxes through a free or paid tax software system, the process is quite a bit faster. The IRS says that most people who file electronically can expect their tax return 21 days after filing.
If you’re old-school and filed your taxes on paper and mailed them in to the IRS, the process is quite a bit slower. You can expect it to take 6-8 weeks from the time that the IRS gets your tax filing.
So there’s a little plug for filing your taxes electronically. It’s a whole lot easier, and you’ll get your money back faster.
What To Do With My Tax Refund
I know there’s an awesome ukulele that you’ve been looking at for a long time, and it would be so fun to just buy it, but wait a minute. Remember the difference between your wants and your needs. Treat income the same way whether it comes in the form of a steady paycheck or an unexpected boost in cash.
Here are 5 suggestions for smart things to do with your tax refund.
Start or Grow Your Emergency Fund
The world can be a crazy place and you never really know what’s going to happen next. You may be the best planner in the world, but that doesn’t matter at all if life has other plans. Usually, when life takes an unexpected turn, it costs money. That’s the one thing you can plan on, so plan accordingly.
Build an emergency fund so that when these things happen, you’re prepared. If you already have an emergency fund, that’s awesome. Feel free to put more money into it so you’ll be prepared for more serious problems that may come your way.
Pay Off Debt
First off, debt should be avoided if at all possible. If it’s too late for that conversation, take advantage of your tax return and eliminate or lessen your debt. If you can’t pay off all of your debts with your tax return, start by paying off debts with the highest interest rate. Those are the ones draining your account the fastest.
It’s going to be really tempting to actually buy something with this money, but working towards being debt free will really reduce the stress on your mind and on your bank account.
Take Care of Secondary Needs
These types of needs definitely fall into a big gray area. They’re less important than your food and rent needs, but they’re more important than your I-really-want-to-visit-Cancun-this-summer needs. These are the things that have been hanging over your head for a long time, but you don’t quite have enough of an excuse to buy them.
Don’t worry. Assuming your debt is under control and your emergency fund is in tact, it’s okay to go ahead and replace your broken blender, get a new pair of shoes, update your glasses prescription. Yeah, you may be fine without these things for now, but if your finances are pretty stable, just go for it.
We’ve mostly been thinking about the short-term throughout this article. Now it’s time to think long-term. Eventually, you’re going to want to retire. That means that you won’t have a steady paycheck coming in. You’re going to need to have saved enough money to live on. Investing early and wisely is the best way to make sure that you have a comfortable retirement.
There are a lot of different strategies when it comes to investing, but most people agree that you can afford to go for more high risk/high return investments early in life, then when you’re older, it’s better to invest more conservatively.
Treat Yourself (Responsibly)
Here’s the tip you’ve all been waiting for. If you have been living on a tight budget for a long time, it can feel amazing to get the chance to splurge a little bit. The feeling of not having to worry about money is really nice. So again, if your debt is under control and your finances are stable, feel free to use a little bit of your tax return to treat yourself.
If you’re strapped for money, this could be as simple as an unexpected dinner out with your spouse or a trip to the movies with the kids. Something small like this can momentarily ease the stress you’ve had on your finances and give you a chance to have some fun.
No matter your financial situation, I’d suggest that the majority of your tax return not be used for this category, but don’t worry, it’s amazing what a little bit of extra treatment can do.
There You Have It
You now have a bunch of great ideas for what to do with your tax refund. Now get after it! If you’re still looking for more in-depth suggestions on how to improve your financial health, check out our blog and learn how to free yourself financially.