Getting a tax refund, whether you expected it or not, is always exciting! Who doesn't love getting a little cash back after doing the work to file your taxes? When your refund hits your bank account, do you have a plan for it? When receiving unexpected cash, we always suggest outlining a plan for those funds to prevent you from going on a spending spree. Your money will serve you much better when you plan for it.
First, while this may not sound like much fun, consider making an additional payment on any debt you have. If you have any debt with a high-interest rate, making additional payments toward that debt will save you more on interest. Along the same lines, if you're satisfied with your debt, consider making additional contributions to your emergency savings fund. We suggest setting aside at least three months of your salary for emergency savings. Even if you use only part of your refund to boost your savings or pay down debt, you'll thank yourself later for taking these proactive steps.
If you do plan to use your refund to go shopping, we strongly recommend going in with a plan. Many retailers use tax season to run specials because they know their customers have a refund to spend. While we do want you to get a good deal, we don't want you to spend your money on something you wouldn't have normally purchased. One way to avoid impulsive purchases when you have extra cash is to follow the 24-hour rule: if you find something you want to buy, wait 24 hours before making a purchase. This cooling-off period before you buy gives you time to decide whether you actually want what you're buying. More often than not, you'll find you don't want the item you're looking at that badly. While making your purchases, we strongly suggest keeping track of your spending to avoid going overboard. Sometimes, when you're shopping, it's easy to get carried away. If you plan to use your tax refund for your shopping trip, make sure that your tax refund shopping doesn't exceed how much you received in your refund.
If you still need to figure out what to do with your refund, another way to think about it is to invest in certain future goals. Do you have a home renovation you'd like to complete? Put your refund towards that project, and it will pay you dividends. Do you have kids at home? Have you had a chance to set up a savings account for them? It's never too early to teach your kids about saving for the future, and you can help them get started by showing them how. Or, do you have a vacation you've always wanted to take? Use your refund to start saving for it. If this topic interests you, take a look at this blog, which focuses on setting financial goals for the future.
Taxes are an inevitable part of life, and it's exciting when you receive a refund! That said, don't let the excitement get the best of you and prevent you from reaching your financial goals. The bottom line here is, remember to make a plan for your refund once you get it. That way, you'll avoid spending it in a way you'll regret later on. Visit Our Blog for more financial literacy articles, tips, and calculators.
This is for educational purposes only and not financial advice.
