Welcome to the 2nd part of the latest series on www.JosephSangl.com – "Best Utilize Your Tax Refund"
It is exceedingly important to have a plan for the refund money BEFORE you ever receive the money!
Step 2 Purchase Financial Freedom
There are really three broad categories of things you can do with your tax refund money.
(1) Give It Away, (2) Save It, (3) Spend It
FIRST: Fill your Emergency Buffer Fund
Do you have money saved for emergencies? You need at least $1,000 for your Emergency Buffer Fund! If you own a house or have children, you need at least $2,500!
How would it feel to have at least $1,000 JUST SITTING THERE in your bank account? I remember the day that we had $1,000 in the bank – and I did not have to mail it out to a creditor!!!
If you do not have an Emergency Buffer Fund, use your tax refund to fill it up!
SECOND: Fund your KNOWN, UPCOMING Non-Monthly Expenses for the year!
One of the biggest reasons people fall off of the "I'm Going To Achieve Debt-Freedom" wagon is because of Known, Upcoming Non-Monthly Expenses! These are expenses that we KNOW are going to happen. Known, Upcoming Non-Monthly Expenses like Christmas, vacations, property taxes, building fund pledges, quarterly insurance premiums, annual health club membership fees, annual golf club dues, and homeowner's association fees. If you have not saved for these expenses, they will completely derail your financial plan!
It is AWESOME to have money saved up in advance for vacation and Christmas!
THIRD: Eliminate Debt!
DON'T skip ahead to this step! Make sure that you have the previous two items in place first! Too many people race past the previous two options and use their $3,000 tax refund to pay off $3,000 of a $5,000 credit card. They have no Emergency Buffer Fund, they haven't saved for Known, Upcoming Non-Monthly Expenses, and now they have just spent all of that money on a credit card.
Even if the $3,000 paid off the credit card, it is still not worth it if one does not have the first and second items in place! Think about it this way. If the $3,000 credit card had a monthly payment of $100, how long will it take to get that $3,000 back into the bank? THIRTY MONTHS! Not worth it.
BUT, if you have taken care of the Emergency Buffer Fund and have saved for your Known, Upcoming Non-Monthly Expenses, it is time to attack the debt! Pull up the Debt Freedom Date Calculator (Excel) and calculate your own Debt Freedom Date! Make some debts leave your life!!!
In the next installment of this series, we will review the FUN options that one has when they have already completed the FIRST, SECOND, and THIRD items!