It is that time of year when we’re all working on our taxes. If you are going to be receiving a refund maybe you’re thinking about whether you should spend or save your refund. Below are some tips we’ve put together to help you maximize your refund.
1. Establish an emergency fund
Did you know that 63% of Americans don’t have enough savings to cover a $500 emergency? If you don’t have a set plan of what you need to spend your tax refund on, set it aside and establish an emergency fund. Whatever your tax refund amount is, put it in this fund. If you don’t have money set aside for emergency situations (car repair, unexpected medical expenses, home repair, and appliance replacement) be sure to set aside a designated amount that you think is sufficient for your situation.
2. Pay Debt
Have debt? Take the opportunity to pay off a smaller credit card or two. If your refund won’t pay off any specific loan, don’t just spend it frivolously at least put money towards the loan you have with the highest interest rate. Making a payment towards your debt will still help you in the long run. With one or two less monthly payments you can add more cash flow to your budget.
3. Kids or Personal School Tuition
If you have tuition payments for you or your children make a payment towards the current year or save it for the next year.
4. Large Cash Purchases
Expecting to buy a new TV, furniture, kitchen appliances, or washer/dryer set? Set it aside for when you’re ready to buy so you can pay for it in cash rather than credit.
5. Home Improvement Projects
Need new windows? Paint? A new roof in a couple of years? It would be beneficial to set your refund aside and put it towards any of these when you’re ready to start the project.
6. Vacation
Have a vacation planned or want to plan one? This is a perfect opportunity to start a budget for it and start your vacation fund!
7. Having a Baby or Planning to
Save or put your refund towards your insurance co-pay or any medical expenses that occur. If you have money left over after baby and mom are determined healthy, consider starting an ESA (Educational Savings Account) or Education IRA – tax-free.
8. Mortgage
Consider making an extra full payment to your mortgage – doing this once a year can eliminate 5+ years off your mortgage.
The bottom line is you should think wisely about how to spend your tax refund. If you’re getting a refund back make sure to maximize it to positively impact your personal finances.