With the April 18 deadline to file your taxes quickly approaching, you’ve either already filed or are planning to do so soon. If you are receiving a refund, it’s important to plan how you will use the money that you get back. Remember, the government isn’t sending you a bonus check, but money that has been yours all along. Before you make any impulsive purchases, you may want to consider using your refund to strengthen your financial life going forward.
Build an Emergency Fund
A good rule of thumb is to have saved 3-6 months of necessary expenses in your emergency fund. However, according to NBC, only 21% of Americans have enough saved to cover that time period. In fact, more Americans have no emergency savings at all, with 29% at square one. If you’re part of that 29%, it would be a good idea to put a generous portion of your refund aside for emergencies. Whether your car breaks down, you become ill or you lose your job, having money in a savings account for when those unexpected expenses pop up can give you some peace of mind.
Get Caught up on Old Bills
If you aren’t all caught up on bills, impulsively spending your tax refund on something you want can lead you down a path toward debt. Your tax refund could potentially be your lifeline in getting caught up on student loans or your mortgage. Getting caught up can save you money in penalties and interest, and prevent future damage to your credit score.
Fix Up Your Home
Fixing up your home can benefit you whether you’ll be selling it down the road or plan on making it your forever home. Purchasing energy efficient windows and doors will save you money on your energy bill, and you may be able to qualify for tax breaks next year. Instead of buying that brand new PlayStation that will sit in one room, consider having every room insulated. You’ll be increasing the value of your home while cutting down on utility bills. If you eventually decide to sell, you may be able to list at a higher price. If you decide to settle in and get comfortable, you’ll be improving your quality of life. It’s a win-win situation! And if you’re a renter, some of the same savings apply to you as well. Insulated curtains, a programmable thermostat and energy-efficient light bulbs can keep your utility costs low.
Save Your Return
Having a savings account at your credit union, in addition to your emergency fund, can help you make large purchases like buying a home, vehicle or even going on vacation. Saving is a lot easier when you have a goal and purpose in mind. This is where savings and club accounts at your credit union come in. Christmas Club or a Tax Club accounts come in handy during the most costly times of the year, and a Vacation or Special Purpose Club can help you budget for purchases that require a fair bit of saving and preparation. It could be a trip to the Bahamas, a wedding, college or even household repairs. The clubs can keep you on track toward reaching your goals and offer you rewards along the way.
Spend It on Something You Want
If you’re all caught up on bills and have a decent nest egg tucked away, it’s okay to spend your tax refund on something you want. You’ve saved all year, and you’ve earned the right to splurge a little bit. If you really want the newest iPhone, buy it. If you want to create memories instead of buying material things, consider going on a trip with friends or family. But remember, don’t get carried away. If you only get a $300 return, a $1,000 trip might not be a good idea. You won’t save $300. Instead, you’ll be spending an extra $700.
What will you be doing with your tax refund this year? I’d love to know!