What are you doing with your tax return?

  • Published
  • By Capt Nathan D. Broshear
  • 505th Command and Control Wing Public Affairs
HURLBURT FIELD, Fla. (AFPN) --  An Airman walked into my office the other day excited about the new flat-panel television he was about to purchase. Here’s a confession: I don’t have a flat-panel TV ... yet. I guess I’m not “keeping up with the Joneses.” Curious as to how the Airman could afford such an extravagance, I asked how he’d pay for such a pricey item.

He smiled and said, “I’m buying it with my tax return money.”

Cue the dramatic music! Since I’ve taken it as my life mission to help young troops avoid the pitfalls of modern personal finance, you can guess how the rest of the conversation went. Be it insurance scams or predatory auto dealers, I believe it’s incumbent upon supervisors, officers and co-workers to help our up-and-coming Airmen prepare for a secure financial future.

Using one’s tax return money for a brief pick-me-up at the local chain store is tempting. I’ll admit that in my younger days, I once blew a check from Uncle Sam like a rock star trying to make the cover of a tabloid. But I’ve learned my lesson, and I hope to help you resist the temptation.

So what should you do with your refund check? First, let’s make one thing clear: the check you receive after filing your taxes is a tax “return” or “refund” -- the money in that check didn’t materialize out of thin air. It was yours all along!

You “overpaid” your taxes and gave the government (your employer coincidentally) an interest-free loan. When you file your taxes, all you’re doing is requesting what’s rightly yours back. And for all that, you still have to wait 10 to 14 days, or longer, to get it.

One could adjust their withholding so that at the end of the year, the amount withdrawn from their check each month equals the proper amount they’d pay in taxes. I still haven’t met someone who has successfully pulled this off. More often than not, they’ve adjusted their withholding only to end up owing money because of some new change in the tax code (and you can be sure the tax code will change every year).

Of course, the Thrift Savings Plan should always be part of a complete financial plan. Putting money into the TSP decreases the amount of income tax you’ll pay and can add up to healthy addition to a military pension. So don’t forget about the TSP. But since you can’t sock away your tax refund in the TSP, it’s a smart move to do the next best thing…read on, young Jedi.

There are a wealth of financial experts out there with different opinions as to what you should do if you’re expecting a tax refund. The one common denominator is this: if you have credit card debt of any kind it’s imperative that you attack that albatross first. Credit card debt is like a bad infection. It will eat you alive if you’re not careful. With the average American carrying well over $5,000 in debt at an average rate of 18 percent, there are few investments that will serve you as well as retiring a credit card.

Paying off credit card debt should always be first on your list. “First” means before the flat-panel TV, before a new couch and before you buy something to make your car more “fast-and-furious.”

If you’re smart enough to not have credit card debt, then starting (or fully funding) a Roth IRA is likely the smartest financial move you can make. Contributions to a Roth are capped at $4,000 per year for individuals. But did you know you can also put away another $4,000 for your spouse, even if he or she doesn’t work? That’s as long as you file your tax “married filing joint."

Here are some other wealth-generating ideas for your tax refund: Pay down your mortgage. Start a college savings plan for your children. Start or beef-up a “rainy-day” fund. Fix your car -- a well-maintained car gets better gas mileage. Give a portion to charity -- you know it’s Air Force Assistance Fund season. Open a brokerage account and buy solid dividend-paying stocks. Buy new energy-saving appliances or windows. Or invest in yourself by learning a skill or finishing a degree program.

No matter what you choose, think about the long-term implications. Is this something that will cost you more money or something that will make you money? The wealthy didn’t get their fortunes buying items at the mall. They got there by buying items that grew in value, saved them future money or paid dividends. You can, too!

In the military we do a great job of mentoring our co-workers on the battlefield, but sometimes forget about the fight for financial freedom. Help your troops make sound financial decisions with their tax refund. For many Airmen, their tax refund is the largest lump-sum check they’ve ever had -- and a great opportunity for a positive change in their financial flightplan.