What to do (and not do) with your tax refund.

No one looks forward to doing their taxes – no one. But most of us are pretty excited when we have a tax refund coming our way. When you receive it depends on when and how you sent it in, what credits you claim and if you're expecting a check or direct deposit. If you filed electronically, you'll probably receive your refund within three weeks. So, what should you do with this sudden windfall? Well, we have some ideas. And, some things you shouldn't do.


1. Create or add to your emergency fund.
Popular guidelines state that you should have six months’ worth of your income saved. If you can’t put that much away, try to put away as much as you can. Your tax refund can definitely give your emergency fund a boost and will make you less vulnerable if you ever lose your job, have a medical emergency or a large repair.

2. Make a deposit into your savings account.
If you’re not yet sure what to do with your return, place it in your savings account. It will earn more interest than in a checking account, and won’t be as easily accessed. After all, out of sight, out of mind.

3. Pay down (or off) your existing debt.
If you have credit card debt, consider this: many credit card companies charge up to 18% interest – or more – on a balance. Using your tax refund to pay off or pay down your balance is smart financial planning. Compare that to depositing it in a checking account where it will earn little to no interest while your credit card keeps charging interest.

4. Fund an individual retirement account.
If you’re already saving for retirement through your employer with a 401K, that’s great. But don’t forget, you can also use your tax refund to purchase or augment a Roth or traditional IRA. Here are the 2020 contribution guidelines for a Roth IRA.

5. Start or contribute to a college fund.
When your children or grandchildren are teenagers, they’ll appreciate any 529 plan contributions you’ve made. Even a small deposit can turn into something substantial, thanks to compounding interest.

6. Invest in the stock market.
If your emergency fund and retirement funds are in a good place and you don’t have credit card debt, consider investing in the stock market. Historically, the stock market yields a greater return on your investment than savings accounts, CDs or bonds.

7. Make extra payments on your mortgage.
Even making an extra payment or two once in a while makes a big difference in how much you ultimately pay the bank. That’s because so much of your mortgage payment goes toward paying off the interest. But if you make an extra payment, it goes towards the principal, thus reducing the amount you’re paying interest on. *Question to client: Can we say something like, “In fact, if you pay just one extra mortgage payment every year, you can reduce a 30-year mortgage to only x years.”

8. Make home improvements or replace an inefficient appliance.
Old appliances and older homes can cost you more unnecessarily, simply because they’re not energy efficient. Investing in things like new windows, a programmable thermostat or energy-saving appliances can save you money in the long run. Also, some improvements can add value to your house if you decide to sell it later on.


1. Don’t splurge on something you don’t need.
Don’t splurge on anything that isn’t a good investment, like a new gaming system or the latest smartphone. Material things might make you a little happier for a while, but they depreciate very quickly.

2. Don’t take your chances at the casino.
Gambling never has a guaranteed rate of return, and the odds are never in your favor. It you like the excitement that comes with gambling, think about some stocks with a more predictable rate of return.

3. Don’t send it right to your checking account.
Checking accounts aren’t known for their high interest rates. Plus, if that money is just sitting there, it’s easy to spend your tax return without really thinking about it or realizing it – until it’s gone.

4. Don’t pack your bags and go on an expensive vacation.
We get it. A warm and sunny spring break sounds pretty spectacular right about tax refund time. It’s also one of the most popular and expensive times to travel. If you really want a getaway, plan in advance – within your non-tax-refund budget.

Still not sure what to do with your tax refund? No matter how big or small your refund, Croghan Colonial Bank has an entire team dedicated to helping you wisely invest your money and make smart financial decisions. Contact, Paul Wannemacher, certified financial planner, at 419.464.3034 or pwannemacher@croghan.com to learn more.

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