You may be getting (or have already received) a tax refund this year- roughly two out of three filers get a refund, according to the IRS. Whether it is a small or large amount, you may be wondering how you can get the most out of it.
Spending it is an option; you’ve certainly been waiting for an influx of cash and it’s nice to enjoy a little something for yourself. You could, however, treat yourself with part of the refund amount, and put the remainder to work for you to have a more solid financial standing in case of an emergency or to save for a goal.
Here are a few things to consider:
1) An emergency fund should be a top priority for all. Having money set aside that you can access to cover a surprise expense or loss of income is huge for your peace of mind. It is recommended that you have three to six months of your total monthly expenses saved, just in case you need it. Even a small amount of your refund is a great way to get started, then add a few dollars a month and you’ll see your fund grow more quickly than you thought possible.
2) Pay off (or pay down) debt. Credit cards and other high-interest debt eats away at your lifestyle. By using a portion of your tax refund to pay off that debt you take away the monthly pressure of meeting the deadline for the bill; and save yourself a lot of money in interest you no longer owe.
3) If you know you will owe for the next tax year and/or you have to pay estimated taxes, you can always roll over your refund and apply it to next year taxes.
4) Save for retirement. There is no time like the present to be putting money aside for your retirement. A guideline is 10% of your gross income for retirement, and this tax refund is a great way to get started.
5) Goals. A vacation, education for children, some other large purchase- all are great things to put your tax refund towards, once you have the emergency fund, debt reduction, and retirement savings under control.
Obviously, you’ve earned your tax refund, so you should enjoy it. With these few little hints, you can enjoy it and also set yourself up for future success and stability at that same time.
