It’s that time of year again, where people eagerly await for the mailman to deliver that one special envelope which contains something almost as exciting as Christmas morning; their tax refund.
With the average refund check at $3,120, you can do a lot with your newly received chunk of change, but how should you spend it? There are plenty of ways to handle this, but it helps to assess your budget and prioritize your financial goals first. Once you sit down and figure that out, start putting your refund towards the following, your mind and wallet will thank you for it:
Pay Down Debt
If your goal is to be debt-free then consider using your refund to make a dent in that IOU pile of yours. Depending on
how many debts you have and how much you owe for each of them, you may want to implement a snowball or avalanche
Don’t get discouraged if your refund doesn’t fully pay off all your debts—you’re one step closer than you were before to being debt-free. Even if you pay off one debt, like a credit card, you’ll have more disposable income to put towards your other debts and you won’t be throwing money away on interest.
Handling debt may be overwhelming. If you feel like you’re in over your head, CCCS offers counseling and a
Debt Management Program. Find more information about it here.
Maximize Your Emergency Fund
Are you like the other 26% percent of Americans, who don’t have any savings for emergencies? Though it’s recommended to have 3-6 months of your living expenses in savings fund, starting with a smaller goal of $1000 will help you when you’re in a pinch. Any money from your refund that isn’t spent on debt should be put towards savings
if you haven’t achieved your goal.
If you’re looking for help when it comes to personal savings, CCCS offers a matched savings program (Individual Development Accounts or IDA's) through its AIM program for low-to-moderate income families. See if you qualify here.
Address Major Repairs or Invest in Necessities
Savings is an important habit, but sometimes things in life happen, like your car breaks down, and you must repair it so you can get to work. If you’ve been putting off a major repair or necessity, now may be the best time to address it, but also remember that just because you have the money to spend doesn’t mean you should spend it all!
For example, if you want a washer and dryer, don’t splurge on a brand new model; buy one used. When another repair or necessity comes up, like a need for new tires, you could very easily regret spending $1500 on a washer and dryer when you could have spent $500.
Address Future Financial Goals or Needs
Have you thought about any other expense that may come up in the near-future? Do you have any upcoming short-term financial goals that your tax refund could help meet? With summer around the corner where electric and utility costs increase, you may want to put away some money for that now. Or if you want to afford gifts for the holidays, you may want to tuck a little money away for that. Planning ahead for these costs and expenses will keep you out of debt and leave you less stressed when the time comes.
Spend at Your Discretion
Taking care of your finances may not be the most enjoyable or glamorous thing in the world, but the peace of mind it brings outweighs any negative, so if you’ve paid off your debts, tucked away adequate spending, addressed current or upcoming needs and you still have money left from your refund congratulations! Is there something you’ve wanted to do, a cause you’ve wanted to support, an investment you wanted to make, a vacation you wanted to take? Now may be thetime to do it, guilt free.
When dealing with finances, sometimes it’s easier said than done. Following these guidelines when it comes to your tax refund will really help you both short and long term, but it’s going to take some discipline. It may be nice to splurge on that item you’ve been really really been wanting, but if it wasn’t in your budget before, it really should not be now!
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