It’s that time of year when most of us can’t wait to get our tax refund back. Having a plan for how you spend your refund is super important.
Here are 8 ways to put that refund to good financial use:
Emergency fund- Saving money for unplanned events is always a good idea as it will alleviate stress and will help to take care of any expenses you incur. As a starting point, we believe that having at least $1,000 or more will be enough savings to take care of any emergencies. However, our recommendation is that you save approximately 3-6 months of your salary in the event you are out of work, or worse, lose your job. Having extra money saved to cover your expenses will help until you get back on your feet.
Pay down debt- Paying down or paying off high-interest debt can save you hundreds or even thousands of dollars in interest. Paying off debt can also increase your monthly cash flow giving you more money to put in savings or towards other financial goals.
Needs- Have you been putting off going to the doctors or sending your car to the repair shop? Now might be the time to make those appointments. Make a list of any immediate needs that can be taken care of with your tax refund. Going forward, be sure to start a repair, doctor, etc. line item in your budget to take care of these things so you don’t have to wait.
Refinance your mortgage- Refinancing your mortgage for a lower interest rate or opting for a shorter-term loan can save you money now and in the future. Refinancing a mortgage can involve closing costs, which you will have by utilizing your refund. Use the money you will be saving to pay extra money on your mortgage or use it to cover some other financial goals.
Wants- Your refund is the extra money you’ve paid in taxes throughout the year. If there is something that you have been wanting, splurge a little; however, that doesn’t mean going overboard. If you have been thinking about taking a vacation, then use a portion of your refund to help, but still budget and save for the remaining portion.
Retirement- Looking into the future? Put some of that extra money away towards your retirement. Talk to your accountant or trusted financial planner to get the best advice.
College fund- Set a portion of your tax refund aside for your children or grandchildren’s college education. Talk to your accountant or trusted financial planner to get the best advice.
Home Improvements- Your house is considered your biggest investment so make sure its functionality works for your family size and budget. Plus, home improvements can really help with cost efficiency, aesthetics, and add monetary value to your home. Whether you add an extra bathroom, bedroom, or redo the kitchen, make your house a home that you will love for years to come.
How you choose to spend or save your refund is entirely up to you, but make sure it fits with your financial goals. Having extra funds can help set you up for success! If you have any questions, need assistance budgeting your money, or need advice on how to make your refund work for you, contact Carrielyn Reynolds at Creynolds@newdimensionsfcu.com or (207) 872-2771.