If you have already filed your taxes, and you know you’re getting a return, you’re probably thinking about how you’re going to spend it. But before you get ahead of yourself, it’s important to treat that money with respect and care, because after all, you worked hard all year to earn it! Think about the return as an opportunity to catch up, or better yet, get ahead. Although a vacation or a new gadget may seem very tempting, in the long run you will get so much more out of taking care of your financial well-being.
Reassess your debt situation. Before you receive that potential lump sum from Uncle Sam, your first priority should be to see where you stand financially. Did this winter really drain your emergency fund or require you to put unexpected expenses on your credit card? Consider the debt avalanche method to pay down your credit card debt in order of interest rate to pay off debt faster and to pay less interest overall. Focus on paying off one balance at a time in order of interest rate while still paying the minimum balance on all other debts.
Contribute to your emergency fund. Do you have six to nine months of living expenses saved? If you were to ever experience a loss of income, medical emergency, natural disaster (like this year’s north east’s winter!), or any other type of financial emergency, you will be very grateful for your savings. If you’re interested on how to effectively build that emergency fund, check out this post.
Save for retirement. How do you know if you have enough money saved for retirement? This can be a tricky question and it depends on what type of lifestyle you want or are expecting to have. Use our retirement calculator to determine if your nest egg is big enough to retire.
Save for a goal. Think about both long and short term goals. Do you want to take a vacation in the next year? Are you hoping to buy a house? These are desires that will take some planning and determined saving. Use ACCC’s Saving for a Goal Calculator to help you figure out how much of your unexpected income you should set aside and how much you will need to save on a regular basis to reach that goal.
Paying down debts, saving and reaching any financial goals are fantastic and truly rewarding ways to utilize your tax return. So when you’re tempted to blow it all on something materialistic, think about how great it will feel to have used that money for the greater good of your future, not just some impulse buy.
For additional assistance to help pay off debts, contact American Consumer Credit Counseling for a free credit counseling session.
Call 800-769-3571 today to speak to a certified credit counselor.