How to Use Your Refund
March 22, 2016
Many of us view a tax refund as ‘bonus’ cash; however, it really should be utilized just as any of your other income would be and managed purposefully. So if you’re anticipating a tax refund this year, make sure you have a plan for your money. Prior to receiving a tax refund, think about your personal financial situation to determine what your needs are.
First you could save the money for a rainy day or a stormy one. Although it may not seem like a very exciting way to use your refund, the peace of mind that establishing or adding to your emergency fund will give you is priceless. Financial experts advise that your fund should have about six to eight months’ worth of savings in an easily accessible interest bearing account.
Next reduce any high interest debt. Putting money away for a monetary emergency, paying off any high interest debt you may have is the next best thing to do.
It is also important to make a list of needs not wants. If there are some necessity items that you desperately need such as repairs on our vehicle, dental check-ups for your children or an essential house repair. Just be sure that any spending you do is on essential items.
Make a budget and fund it. If you don’t already have a budget, receiving your refund may be the incentive you need to create one. Once you have your budget organized, consider using your refund to seed bank accounts for key purchases such as holiday gifts, car down payments, and college savings.
You could top up tax sheltered accounts using your tax refund or start or top up a traditional Roth IRA or to contribute to a 401 K or a 529 college savings plan offers you a double bonus. Not only will you be compounding dollars and interest for your future retirement or college tuition needs but you may be creating a deduction for next tax season.
Finally if you have some funds left over from your refund after taking care of savings, debts, and necessities, maybe this year’s tax refund can go towards funding a dream like a family trip or a memorable location or even starting your own business.
I hope I have helped you find a better more efficient way to use your tax refund. If you have any questions please feel free to give Compton Accounting a call at 309-484-8888. Have a wonderful day.