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Your Best Money Moves for March

March 3, 2015
Personal Finance
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With March Madness tipping off in a couple of weeks, it’s up to you to make sure that the same phrase doesn’t describe your spending habits this month. To avoid financial mayhem, make good use of your tax refund and consider bolstering your retirement fund. Whatever you do, the name of the game this month is staying organized and on top of your savings goals.

‘Atonement’ by refund

When it comes to tax refunds, utility should trump entertainment. It may not be much fun, but it’s what’s best for your wallet.

“If you receive a sizable tax refund, it’s not time to run out and put money down on that Harley you’re hoping to cruise on this spring,” says Carrie Houchins-Witt, a financial advisor in Coralville, Iowa. “Rather, you need to look at your personal finance sins of the past 12 months and use that tax refund for atonement.”

In recent years, federal refunds have averaged about $3,000, according to the Internal Revenue Service. Spending that cash on anything that doesn’t deliver long-term value, like a trip overseas or a big night on the town, isn’t ideal. Instead, consider paying down debt or adding the money to a retirement account or to emergency savings.

“Tax refunds can be a good thing for taxpayers, even if they are letting Uncle Sam use the money for a year,” says Johanna Fox Turner, a financial advisor in Mayfield, Kentucky. “To make the most of your refund, you should lay out your priorities as soon as you know how much you can expect.”

Though everyone’s priorities differ, you’ll know you’re on the right track if you’re planning on saving at least some of the money one way or another. Retirement planning can be complex, but emergency funds are not: Most experts recommend having three to six months’ worth of normal income available for emergencies. Getting to that level can be easier with your refund added in.

Withholding adjustments

If you find yourself receiving large tax refunds year after year, it might be time to change the tax withholding amounts used by your employer. You can do this anytime by filling out a new W-4 form.

“Consider whether or not you want to adjust your tax withholding so that you don’t give Uncle Sam another interest-free loan in 2015,” Houchins-Witt says. “Many people don’t realize that if their withholding is too high, they are just overpaying their taxes with each paycheck, and instead could be getting that money now for something useful.”

Houchins-Witt recommends meeting with a tax professional who can help you estimate what you’ll owe for 2015 and recommend withholding adjustments.

Revisiting retirement contributions

Because of changes to some retirement account contribution limits this year, revisit how much money goes into those funds each month. While the IRS kept limits at 2014 levels for individual retirement accounts, it raised them on most other types of plans by $500. That includes 401(k) and similar plans.

“The 2015 contribution limit for all of your traditional and Roth IRAs is $5,500, or $6,500 if you’re age 50 or older,”  Houchins-Witt says. “For 401(k)s, 403(b)s and most 457 plans, it is $18,000, or $24,000 if you’re age 50 or older.”

Although saving at least 10% of your gross income is a good place to start, gradually increasing that figure to 20% is the best course of action, Houchins-Witt says.

“The older you are, the more you need to put away for retirement, particularly if you are trying to play catch-up,” she adds. “Think of it not only as taking care of yourself, but as a gift to your children so that you won’t have to ask them for money in old age.”

Spring cleaning write-offs

Tidying up at home can pay off, especially if you’re dusting off unused items and donating them to charities.

“Clean out your closets and donate all the junk you’ve accumulated over the winter,” Fox Turner says. “Re-gift those Christmas nightmares to Goodwill and get a tax deduction. Be sure to keep detailed records to get the maximum deductible value.”

After staying true to your New Year’s budget resolutions at the start of the year, it can be tempting to lapse back into old, wallet-emptying habits. By following these tips, you can avoid that trap and to stay on track for a fiscally sound 2015.

Tony Armstrong is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @tonystrongarm and on Google+.

Illustration by Dora Pintek