It's that time of year again - time to do taxes. We gather up our records and head out to an accountant in hopes of not having to pay a big tax bill. Surprisingly, it's the people who have to pay that have done something right with their finances. They did not give the government free use of their money all year long. If you get a refund, it means you paid too much during the year and basically gave the government a no interest loan. My father, on the other hand, pays as little as possible during the year, and puts the money he would have given the government into savings until the tax bill comes due. So, he gets interest off the money until it's time to pay the bill. That is no easy trick.
Still, for the average person, setting aside money to pay taxes later takes too much self-discipline. It's easier to pay more out of each paycheck and get a refund in the end. This is reality finances. The best plan is not always the ideal plan; the best plan is the doable pan that works for you.
So, if you are expecting a refund this year, what do you plan to do with that money? It's not very often that we get a sizeable chunk of money all at once. It's tempting to spend it on something fun. It's even more likely to just slowly disappear into everyday spending. However, if you make a plan, that money could be used to improve your financial stability.
Let's move though some various areas of your finances:
Are you behind on any of your current bills? This is the first priority. You need the rent and utilities paid. You need food. Don't go spend that tax return on a new toy if the electric is about to be shut off. Get current on all your bills first.
Next - Do you have an emergency fund of at least $1000? If not, I highly recommend you use that tax refund to start a savings account that you only touch for unexpected emergencies. This is your insurance against pulling out a credit card or taking a loan when the water line breaks or you end up with an expensive trip to the emergency room. You eventually want this fund to contain enough money to pay your bills for a few months in case you lose a job or face extended health problems.
Next - Do you have any outstanding debt to pay off? Don't be financially crushed by your past decisions. Put a chunk of that tax return on your smallest debt and watch it disappear. Then take the minimum payment you were making and add it to the next largest debt you want to pay off. This is Dave Ramsey's debt snowball strategy.
You might also want to consider putting that extra cash in your child's college fund or as an extra payment on your home mortgage. Or perhaps you are saving up for something like vacation or a new car. Tuck your tax refund into that category and move your goals forward.
Another way to use this money is to plan for your future by investing. A trustworthy broker can help you find a well-balanced mutual fund to invest in, and then you get to watch your money grow.
The last thing I'm going to suggest should probably have been the first - give some of it away. Being generous is a gift to others and to yourself. Funding something you believe in will give you an emotional boost. It will bring you more joy than the latest shiny trinket ever could.
Whatever you decide to do with your tax refund, make sure it serves your needs and your values. This is a once a year chance to make a big impact on your finances. Don't waste it.
Still, for the average person, setting aside money to pay taxes later takes too much self-discipline. It's easier to pay more out of each paycheck and get a refund in the end. This is reality finances. The best plan is not always the ideal plan; the best plan is the doable pan that works for you.
So, if you are expecting a refund this year, what do you plan to do with that money? It's not very often that we get a sizeable chunk of money all at once. It's tempting to spend it on something fun. It's even more likely to just slowly disappear into everyday spending. However, if you make a plan, that money could be used to improve your financial stability.
Let's move though some various areas of your finances:
Are you behind on any of your current bills? This is the first priority. You need the rent and utilities paid. You need food. Don't go spend that tax return on a new toy if the electric is about to be shut off. Get current on all your bills first.
Next - Do you have an emergency fund of at least $1000? If not, I highly recommend you use that tax refund to start a savings account that you only touch for unexpected emergencies. This is your insurance against pulling out a credit card or taking a loan when the water line breaks or you end up with an expensive trip to the emergency room. You eventually want this fund to contain enough money to pay your bills for a few months in case you lose a job or face extended health problems.
Next - Do you have any outstanding debt to pay off? Don't be financially crushed by your past decisions. Put a chunk of that tax return on your smallest debt and watch it disappear. Then take the minimum payment you were making and add it to the next largest debt you want to pay off. This is Dave Ramsey's debt snowball strategy.
You might also want to consider putting that extra cash in your child's college fund or as an extra payment on your home mortgage. Or perhaps you are saving up for something like vacation or a new car. Tuck your tax refund into that category and move your goals forward.
Another way to use this money is to plan for your future by investing. A trustworthy broker can help you find a well-balanced mutual fund to invest in, and then you get to watch your money grow.
The last thing I'm going to suggest should probably have been the first - give some of it away. Being generous is a gift to others and to yourself. Funding something you believe in will give you an emotional boost. It will bring you more joy than the latest shiny trinket ever could.
Whatever you decide to do with your tax refund, make sure it serves your needs and your values. This is a once a year chance to make a big impact on your finances. Don't waste it.
No comments:
Post a Comment