Tax season is over now, and the majority of Americans have already received their refunds. Now that you have this extra cash at your disposal, you have a new dilemma. Should I go on a nice vacation? Buy a new car? Spend it all on debt? There are so many options to choose from, but we want to go with the smart options for your budget and personal finance situation!
How should I use my Tax Refund?
1. Pay Down Debt
If you have debt that you have accrued over the past year (credit cards, collections, past due bills), knock these out IMMEDIATELY! Credit card debt is typically the highest interest debt that most Americans are holding onto. The interest rates may vary between 10-20% for most card holders. Why not get rid of this debt which is helping you stay in debt for longer? The average American, depending on whose statistics you use, is between $5,000 and $15,000. Why not knock out a nice chunk of debt with your Tax Refund, versus spending it on things that you "want". You will end up saving more money in the long run from all of the accrued interest you will end up paying. If you don't have any of the above issues...
2. Emergency Fund
Once your high interest debts are under control, you need to make sure you have sufficient money saved for a rainy day. In fact 90 rainy days is preferred! As mentioned in a previous post touching on Emergency Funds, having enough savings to cover 3 months of expenses is ideal. So if you don't have a sufficient emergency fund, use your refund to add to or complete it!
3. Save Money for a Downpayment
Thinking of making a big purchase some time soon? If so, why not use your refund to help with the downpayment of your future home, or a car you may need. Now don't go get a brand new car because you just want a new car! Especially if there are other concerns, as mentioned above. However, if you rely on your car to get to work in order to make money, then making sure you have reliable transportation is a big priority. In regards to a downpayment for a home, putting more money down will help to reduce the amount of interest you pay over the lifetime of your mortgage. If you have enough saved for a 20% downpayment, this will eliminate any need for Private Mortgage Insurance (PMI) payments in addition to your mortgage.
These are just the top options to use your refund for. Maybe you don't have any of these things to worry about, and you can afford to spend your money on a vacation...that's awesome! But what if you could have your refund money all throughout the year, instead of waiting until next year to get YOUR money back?
Why you Should LOWER or ELIMINATE your tax refund!
Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!