As a father of millennials, I’m very aware of the generation’s unfair reputation of being entitled. But I’d argue that millennials are possibly more money conscious than previous generations, prioritizing their financial health by often paying down debt. In fact, 43 percent of millennials intend to use their tax refund to pay down debt versus 31 percent for the general population.
This shouldn’t really be a surprise. They grew up in a financial recession, with many entering the workforce for the first time around the market collapse of 2008. They were shaped by tough economic periods and became financially savvy because of it.
Millennials already have the disposition to save, but here are some ideas to help you be even smarter this tax season.
You can’t take it with you. Invest accordingly. I love seeing strong numbers in my savings account, too, but the purpose of money is to improve quality of life. Take a step back and use your tax return in a way that’s going to have the greatest impact on your life. Invest in yourself. If you’re two classes short of your bachelor’s degree, use it to finish school. If you want to dress a certain way for your next job, but don’t have the clothes to do so, invest in a wardrobe. If you haven’t had fun in a while, invest in an experience, but be mindful. Don’t go on a vacation that exceeds your tax refund and come back in debt.
Don’t put yourself in a “forced” savings plan. Tax season is a great time to think about adjusting your W-4s, so your employer withholds more (or less) of your federal income tax from your pay. The more allowances you claim the less is withheld. Many people like to do the opposite, so they get a bigger tax refund. Many people view their refund as money the government is giving them versus a return of their hard-earned dollars. Uncle Sam holds your money at 0% interest. Withhold less money and stream those funds to an account that generates interest. Make sure your money is working for you, not sitting still.
If you’re going to pay off debt with your tax return, do it the smart way. Bigger is not necessarily better. If you have multiple credit cards, we often look to pay off the one with the biggest balance, not the one with the highest interest rate. Take care of the latter first. At the end of the day, that’s the one that costs you more.
Don’t be without an umbrella on a rainy day. Research shows 46 percent of people can’t come up with $400 for an emergency. Put your tax return in a rainy-day fund. For example, if you have $1,000 of your tax refund to put aside, put it in a savings account. Add to it by raising your insurance deductible to $1,000 so your premiums come down. Use the difference between the old and new rates to make your savings larger over time.
Invest in your retirement. This is one of the best ways to make your refund bigger. Self-employed individuals can fund their own retirement, while lowering their taxable income. Many self-employed individuals think they only have until December 31 for tax planning, but that’s not true. In fact, small business owners can put money into a SEP-IRA (Simplified Employee Pension-Individual Retirement Account), which is a method to contribute toward their retirement savings and ultimately gives them an additional tax deduction. The great news is you have until the October 15th tax extension to put money away for retirement and save on your 2017 taxes.
File your taxes for free. If you don’t own a house or a business, you should be doing your own taxes. United Way Worldwide and Cricket Wireless joined forces last month to offer access to United Way’s FREE tax filing service, MyFreeTaxes.com.
Pay off the things you can’t live without. Your phone is probably one of your biggest expenses outside of your rent or mortgage, car and insurance. It’s probably your most unpredictable bill, too. Switching to a prepaid wireless carrier solves that. Companies like Cricket offer fully-transparent unlimited talk, text and data phone plans with fees included and no overages. If you’re on a $50/month phone plan, take $600 out of your refund and get a clearer financial outlook. Think about not having to worry about your phone bill for an entire year.
Keep it in the family: Nearly half of smartphone or mobile phone owners with children 18 or older have kept their adult kids on the family cell phone plan. And 53 percent of those parents say that the child pays some or all of their bill, according to an online survey commissioned by NerdWallet and conducted by Harris Poll. Prepaid phone providers offer great plans to help families save. For example, Cricket has 4 lines of unlimited data for $100 with the Cricket Unlimited 2 Plan*.
Tell me how you’re using your tax refund to improve your quality of life. Shoot us a note on Twitter at @CricketNation and @LouisBarajas.
Louis Barajas, named by Mutual Funds Magazine and Money Magazine as one of America's top financial advisors, speaks about money through the lens of life, not just bank accounts. The author of books such as My Street Money; Overworked, Overwhelmed and Underpaid; and Small Business, Big Life, Louis makes complex and daunting money issues easy to understand and relatable to the common person.
*4 lines for $100/mo.: Limited Time Offer. $55/mo. Unlimited 2 plan required on four lines. Not elig. for Auto Pay credit or Group Save discount. For existing customers who change plans, discount may not start until next billing cycle. After 22GB/line/mo., you may experience slower speeds than other Cricket customers during network congestion.