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 any sum of unexpected cash, we always suggest outlining some sort of plan for those funds to prevent yourself from going on a spending spree. Your money will serve you a lot better when you make a plan for it.
First, while this may not sound like much fun, think about making an additional payment towards 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 that same thread, if you're satisfied with where your debt is, 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 only use part of your refund to contribute to your savings or debt, you'll thank yourself later for taking these proactive measures.
If you do plan to use your refund to go shopping, we strongly recommend going in with a plan. A lot of 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 making impulsive purchases while you have some extra cash is to follow the 24-hour rule: if you find something you want to buy, wait 24 hours before you make a purchase. This cooling-off period before you buy gives you time to decide whether you actually want something or not. 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 keep yourself from going overboard. Sometimes when you're shopping, it can be 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 look at it is to think about investing in certain goals for the future. 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 do that by getting them started with saving. 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.