7 Smart Uses for Your Tax Refund
If you received or are expecting to receive a tax refund this year, you should make a plan for what to do with your money. It is very tempting to treat a tax refund as a bonus check and to spend it without much thought, but the truth is this is money you loaned the government and are just now getting back. If you have a huge refund every year, checking your W-4 form and adjusting your federal income tax withholding allowances will put more of that money back in your pocket every month!
But what is the smart thing to do with the lump sum? There isn't just one answer of course, depending on your needs and financial situation. Here are seven financially savvy ideas for putting your tax return to good use.
1. Emergency Fund
The general consensus among financial advisors is that you should have six to eight months of living expenses in an emergency fund. Having this kind of backup plan is a huge stress reliever and well worth the time spent accumulating it!
2. Paying off Debt
If you have multiple sources of debt, aside from a mortgage, prioritize according to interest rates. High-interest debt needs to be paid first, even if it is a smaller amount. If this option isn't very appealing, just think about how much more cash you will have in your pocket once you are debt free!
3. Spend to Save
Is there some item or looming expense that is a financial drain, or at risk of becoming one if not addressed? How about a major appliance you pay a repairman to patch up each year? Dental work you are putting off? Save money in the long run by investing in a replacement with the cash on hand today.
4. Save for Future Purchase
Maybe you need to replace your washer and dryer, but this tax refund doesn't begin to cover the full amount. Start a saving plan for the purchase and use your refund as your first deposit! You may be surprised how encouraged you will be to save once you have a good head start.
Whether you have been diligently working on your retirement savings plan since your 20's or just getting started, everyone needs to make a plan for their future. If you don't have a plan in place, talk to a GHFCU MSR about our IRA and Term Share Certificate options.
6. Give to Charity
The credit union culture is based on a desire to build strong communities by providing affordable financial services. In this same spirit, GHFCU invests in our community and financially supports several local organizations. We encourage our members to do the same with the charities of their choice!
7. Buy Something you Want
Responsible spending doesn't have to be all work and no play. Treat yourself to something reasonable and enjoy the benefits of your hard work!
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