We’ve officially entered the super exciting time of TAX SEASON! Well, if you’re getting a refund that is. What exactly should you do with this “extra” money this season? Save it? Pay off a debt or two? Invest it? Spend it? The possibilities might seem endless! However, I would encourage you to plan out your refund BEFORE you ever get it.
For questions like these, I typically refer back to the I Was Broke. Now I”m Not. Ladder. By identifying where you are on the ladder, you can pretty easily decide on the best way to spend your refund this year.
If you don’t have a months worth of expenses in an emergency savings, use the refund to grow that savings to move up the ladder. If you already have an emergency savings and you are already investing, your next step should be to attack some debt. Maybe you could use your refund this year to knock out a debt or two, starting with your smallest balances. On the other hand, you could have all of your debts paid off and have a healthy emergency fund, so you could use your refund to pay off more on your mortgage.
Ultimately, you really should just think through your tax refund before you just spend it frivolously. Getting a chunk of money like a tax refund is typically a rare event for most people. So make sure you use it wisely. If you want to think out some different ways to “spend” your refund on paper first, you should check out our Mini-Budget Tool. This tool will allow you to spend your refund three different ways and compare and contrast what the best decision is for you and your family.
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