If you’re expecting a tax refund this year, you should have a good plan for your money. Maybe you already have the funds earmarked for some spending, however, don’t get caught treating your refund check any differently than you’d treat your weekly or monthly paycheck. Give the money a purpose. Think about your personal financial situation and determine your needs. Here are several financial priorities you may want to consider.
1. Start or Increase Your Emergency Fund
Without an emergency fund, just one surprise or major expense can send you on a debt spiral toward financial disaster. Many experts say that your fund should contain about six to eight months’ worth of savings in an easily accessible interest-bearing account. Saving that much money might take months or even years if you’re just taking a little bit out of each paycheck. So use your refund to make a significant deposit to your emergency fund.
2. Pay Off High-Interest Debt
Put your refund to work by starting your debt elimination program of choice, paying off payday loans, title loans, debt consolidation loans, high-interest private student loans, car loans, or credit card debt.
3. Spend It On Something You Need
Are you having car trouble? Have you put off important dental work? You need to take care of these essentials. Once you collect your refund, you may be able to cover the cost.
4. Start Itemized Savings Accounts
Make a budget and break your refund into pieces, each of which plants the seed in your bank account for important future purchases. Putting your refund toward specific savings goals can prevent you from taking on debt down the road, when needs or desires arise.
5. Refinance Your Mortgage or Make Home Improvements
When you refinance your mortgage, you must still pay closing costs and fees. By using the refund to pay for the closing costs, you can save thousands of dollars per year on mortgage interest. If you’re happy with your mortgage rate, take a look around the house. Home improvement projects can immediately increase the value of your property while simultaneously making your home more comfortable.
Source: 10 Smart Ways to Spend Your Tax Refund Money Wisely, Pat S., www.moneycrashers.com
