If you’re expecting a tax refund this year, you need to have a good plan for your money. Don’t get caught treating your refund check any differently than you’d treat your weekly or monthly paycheck. Give the money a purpose. Think about your personal financial situation, and determine your needs. Here are several financial priorities you may want to consider.
1) Start or Increase Your Emergency Fund
Without an emergency fund, just one surprise major expense can send you on a debt spiral toward financial disaster. Many experts say that your fund should contain about six to eight months’ worth of savings in an easily accessible interest-bearing account.
2) Pay Off High-Interest Debt
After establishing an emergency fund, the next best thing you can do with your tax refund is reduce or eliminate any high-interest debt that you’re carrying. Put your refund to work by starting your debt elimination program of choice, paying off payday loans, title loans, debt consolidation loans, high-interest private student loans, car loans, or credit card debt.
3) Spend It On Something You Need
Are you having car trouble? Do you need a new winter coat? Have you put off important dental work? You need to take care of these essentials, and once you collect your refund, you may be able to cover the cost.
4) Start Itemized Savings Accounts
Now is the time to start practicing the mindset of the disciplined and frugal consumer. First, make a budget, and break your refund into pieces, each of which plants the seed in your bank account for important future purchases.
5) Refinance Your Mortgage or Make Home Improvements
When you refinance your mortgage, you must still pay closing costs and fees. But use the refund to pay for the closing costs, and you can save thousands of dollars per year on mortgage interest.
If you’re happy with your mortgage rate, take a look around the house. Do you need a new roof? Is your kitchen outdated? Could new energy-efficient appliances lower your utility bills? Home improvement projects can immediately increase the value of your property while simultaneously making your home more comfortable.
6) Donate to Charitable Causes
On a tight budget, making charitable donations can unfortunately slip down on your list of priorities. Your refund gives you a chance to give a little back.
7) Get a New Business Up and Running
Have you been looking for seed money to take your business to the next level? Do you have a venture that you want to start? You can use your refund to move in the right direction. It’s a great opportunity to turn your refund into income for years to come, and get a few more small business tax deductions next year as well.
8) Spend It On Something You Want
You saved all year, and now you’ve earned the right to splurge a little bit. Don’t feel guilty about using the extra cash for a summer vacation or to treat your family to a nice dinner. Just don’t get carried away – a $500 refund is no excuse for a $3,000 trip.
Whether it’s a major windfall or just a drop in the bucket, your refund should feel like “found money” – and if you’re smart, you can put it to work for you and improve your financial situation. You can even treat yourself – just don’t blow it at on a huge, unnecessary splurge.
Information by Pat S. from MoneyCrashers.com.