So, you got a tax refund, what’s the best thing to do with the money? Let’s talk about 4 ideas of what to do with your tax refund.
How about starting or increasing an emergency fund? This is the best time to start saving for emergencies that will eventually happen. If you don’t have an emergency fund this is a great time to start saving, experts say you should have at least 6 – 8 months of living expenses in an emergency fund, but that can be an intimidating number to save all at once, so let’s just start with saving $500 and consistently putting money into the account to build it up. The key is consistency, once you get into the habit of saving monthly you will see the money start to grow. I have found that having the money taken out of my paycheck and put in an account for me, keeps me on track to saving monthly. I also have my emergency fund in a different bank from my checking account, as long as I don’t see the money, I don’t spend it.
Once you have started an emergency fund, your second priority should be to pay off debt, whether you choose to pay off the highest interest rate, or the smallest balance, any extra money you can put towards paying off debt will pay it off faster and eventually put more money in your pocket.
Now let’s talk about spending some of that money. Is there something you have put off doing or buying because of the expense? Do you need new snow tires, have some expensive dental work done, or maybe some home improvement projects you’ve been putting off? This is a great time to do some of the things you have put off because of the expense.
Finally, have a little fun. I always tell my clients to use some of a tax refund to go do something, maybe a weekend away, a nice dinner, just don’t go crazy. Getting money back in a refund isn’t like finding money, this is money that you worked hard for, so make sure what you do with it will work just as hard for you.