How you handle “windfalls” of money can largely determine your financial success. Here are a few ways you can apply your tax refund:
1. Build an Emergency Fund – One of the best ways to reduce stress in your life is to increase your margin. That includes giving you some cushion for the occurrence of “life events” like job loss, family health issues, etc. It’s nice to have savings for these things when they come up rather than having to rely on credit cards!
2. Payoff Debt – Paying credit card interest will cripple your chances of financial success. Delay immediate gratification with your refund and apply it towards paying off credit card debt. Then once you have an emergency fund in place and have paid off credit card debt, fire away at those student loans & car loans! Imagine the feeling of not having a student loan payment or a car payment. What could you do with that money each month?
3. Save For a Major Purchase – Use your tax refund toward a major purchase goal such as your next car, home upgrades, new appliances, or new furniture. Set a goal for how much you’ll need and save that amount so you can pay cash, avoiding the purchase/debt cycle that plagues so many Americans today.
4. Save to Purchase a Home – Depending on the size of your refund, you may be able to make a dent in saving for your new home down payment. If done right, buying a home is one of the best ways to secure your future retirement, and gain a tax deduction in the meantime. Depending on your situation, you may qualify to purchase a home with only 3% down. Contact us if you have questions regarding this.
5. Contribute to Retirement Accounts – You can apply refund money toward retirement accounts such as Traditional IRA’s, Roth IRA’s, 401k’s, etc.
6. Give to Those Less Fortunate – Bless somebody else with your money. There are many ways you can be generous and change somebody else’s life. Be creative! Here’s one fun idea: click here.
The key is to think about how you can best apply your refund according to your goals before you impulsively spend it aimlessly.
What are you going to do with your refund? Please reply and let us know!