It’s tax refund season! For those who are lucky enough to receive one, now is the time to think about where it fits in your financial plan. Preparing for costs of living in advance lessens the burden you’ll feel by being caught off guard for things that may come your way this year. Prepping now may also help you avoid any impulse buying.
From deciding to save or pay down debt, where do you start? Here are four tips to help you figure out what you want to do with your tax refund.
Create or Build Your Emergency Fund
Putting money aside for an emergency helps manage unpredictable expenses such as unexpected car or home repairs, or even losing a job.
Nichole Coyle, Certified Financial Planner, recommends having at between $500- $1,000 in your emergency fund to get started. It is recommended that you set aside at least six months’ worth of wages as a cushion.
Reduce or Pay Off Debt
Do you have high-interest balances on your credit cards? Use the debt avalanche method to drive down debt. Pay off the bill with the highest interest rate first, while paying minimum balances on the rest of your debts.
After you pay off the highest interest debt, move on to the next until you are debt-free. Doing this can free up funds to put back in your budget.
Save for Your Future
After you’ve built your emergency fund and paid off some high-interest balances, work towards depositing some money into a retirement account. Even a few hundred dollars could have huge growth potential in the long run, thanks to compound interest!
Invest in You
Think about what you want to purchase six months from now. Whatever it may be, it will great knowing that you have saved your money for it! There is something to said for rewarding yourself after you have reached your financial goals!
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