What to Do with Your Tax Refund

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2017 tax returnIf you’re one of the millions of Americans who will be receiving a tax refund this year, you may be feeling a bit guilty having “lent” the government those funds all last year, but on the other hand, it sure feels great to get a nice check once that tax return is processed! While it’s tempting to spend that extra income frivolously, consider taking the next steps towards improving your personal finances.

Depending on you financial status and the size of your return, you may only be able to complete the first two steps, and that’s OK! The most valuable step towards a more stable financial future is the first one. Work your way through the steps at the right pace for you, and use them to help guide your financial goals for the future.

 

Step 1: Impose Some Discipline

The first thing you’ll want to do is ensure that the money from your refund is separated from your general funds so it isn’t mixed in right away and spent. This might mean putting it into a sub-account at your bank. You might even consider opening a new account somewhere and depositing that refund as your first check. This will ensure the money is there to use as you planned, hopefully for savings.

 

Step 2: Pay Down Debt

Take a deep look at your cumulative debt. What is your highest debt by either amount owed or by interest rate? Take the time to do the math to see where your return would have the biggest impact on your financial health. Usually, this is your debt with the highest interest rate attached to it, but if you carry a high balance on a lower interest card, that might be better. Use a debt payoff calculator to help inform your decision.

 

Step 3: Build an Emergency Fund

If you don’t have an appreciable amount of debt and can afford to set the money aside, set up an emergency fund! It may not feel like you’re making a big difference in your financial health, but you’re taking a crucial step towards a stable lifestyle. It will prevent you from having to make tough choices or forgo a mandatory payment on something else down the road when you run into an unforeseen emergency.

 

Step 4: Invest in a Money-Saving Purchase

It’s nice to be able to invest money to save more money down the road. This is often the case for various home improvement upgrades. This could be anything from insulating your attic better to getting new windows or a new HVAC unit. While it may seem like a high upfront cost, you’re adding value to your home in case you want to sell later, and you’re improving the efficiency of your utilities to save more over time.

 

Step 5: Start Investing

If you’ve never actually done any investing outside the typical banking system, now might be a nice time to buy your first stock or mutual fund. If you are wary about taking this step, meet with a financial planner to see what options are best for you. Understand if you are more comfortable with high- or low-risk investments. You can also look into saving for retirement through an IRA.

 

Enjoy Life!

We all need to enjoy life once in a while. Perhaps there’s a trip you’ve been putting off or another large purchase that you want to entertain this year. If you’ve made it through all five previous steps, consider giving yourself a reward for your diligent efforts.

 

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

 

 

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About 

Babs is a content writer at Enova International, Inc. with a Bachelors in Cinema Studies and English from the University of Illinois (ILL-INI!). She loves binge watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos! Find out more about her on Google+.

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