Money College: Maximize the student tax rebate
Feb 18th 2010 8:00AM
Updated Feb 18th 2010 9:26AM
There's always one guy who calculates the cost per hour of classroom instruction ($68.98 at Loyola University Chicago, in case you were wondering), while others cower and refuse to think of the debt they've accumulated. Tax season offers a further haven from reality. After all, there's nothing more gratifying than a fat, Technicolor check from the U.S. Treasury.
Of course, the best strategy for maximizing your refund is to not get one at all, calculating your proper deduction and avoiding that interest-free loan to Uncle Sam.
If you receive a refund this year, be proactive about putting it to good use--though let's assume that paying for your next couple of nights out does not count as "proactive." The following tips are my version of the good, the bad and the ugly when it comes to tax refunds: the fun, the functional, and the far-fetched.
1) Use the 80-20 rule. Most of us learned to split our allowances 50-50 between two piggy banks. The recession and the sheer size of some refund checks will force you to ratchet it up a notch. Let the IRS work for you: tell them to deposit 80 percent of your refund into a savings account, the rest in checking where it's OK to spend it. Avoid my freshman mistake of depositing a refund into a checking account "for safekeeping." Let's just say that the bloated "freshman 15" can also refer to overdrawn account balances.
2) Thrifted essentials. If you've survived the semester with a collection of 10 shot glasses and two tumblers, now's the time to round out your collection. Head to the thrift store and reassure yourself that the matchy-matchy, put together look is so 2005. Thirty minutes in the dishwasher and your dated dishes will look as good as new.
1) Pay down debt. How many of us will use the government's six month grace period on Stafford loans to avoid reality? Confront your obligations head-on and put all or some of your refund toward student loan or credit card debt. You won't be alone: 91 percent of respondents in a 2009 AP survey said they planned to use their refund to pay bills or repay debt. We can assume that most of these respondents began their post-graduate adventures long ago. Start thinking today about when your own will begin, free from obligation.
2) Build up an emergency fund. Relieve yourself of old debts or save for a rainy day? For college students, vehicle expenses, technological emergencies or last-minute travel plans are the most likely rainy-day culprits. An emergency fund can help graduates bridge the gap between classroom and career without moving back in with mom and dad. Above all, an emergency fund can help keep credit card debt low or nonexistent.
3) Invest in a working wardrobe. Guilt-free shopping? Go ahead and spend your mini-windfall on clothes – but invest in timeless, work-worthy pieces that will endure a battery of interviews and internships. Guys, bring your girlfriend along and look for items with the following labels: "khaki," "chino," and, most importantly, "stain-resistant." Ladies, try shopping outlet malls or luxury stores' bargain-priced little brothers (think Nordstrom Rack and Old Navy).
As for the far-fetched ... I'll let your imagination run wild on this one. Do you have an overseas trip in mind that might change your life? Or an adventure of some sort your tax refund could support as opposed to, say, a keg party? Above all, remember: it's your money. Depending on how much you procrastinate, tax season and spring break can intersect at a dangerous angle. The trick is to get ahead of the April 15 deadline, get those tax returns filed, and plan what you'll do with a refund that makes the best use of your dough.