Okay, let me just get it out of my chest: People will stunt on other people during tax season talking about they’ve been getting and living like that even before tax refund hit their accounts, haha. Tax season is a season itself for others haha. Enough roasting people because I’m sure the shoe might feet to some, sorry haha.
1. Pay towards debt
This should be a given especially to anyone who’s sinking in debt. List down all your debt from least to greatest (also known as the snowball method). Whatever your tax refund allows you to pay off, do it. It will help speed up your debt free journey, as well as decrease monthly minimum payments.
For example: 5 total different debt and $3,000 tax refund
1. $250 credit card #1 ($50 minimum)
2. $500 credit card #2 ($75 minimum)
3. $1,000 credit card #3 ($100 minimum)
4. $1,200 dental work
5. $50,000 student loan ($200 minimum)
Each month, you have reoccurring payments totaling up to $425 and that does not include interest and taxes. The $3,000 tax refund will eliminate 4 out of 5 of your debt, allowing you to pay only $200 a month on reoccurring bill. Paying minimum will only keep you in debt because interest will also take a percentage from your payment keeping you in debt.
Reminder: Paying your monthly on time maintains your credit score. Paying OFF your debt will fix and increase it. Almost everywhere ask for a credit check before they approve you for anything. Just think, opening an account at AT&T.
Working hard all year staying in budget or just need some time off, but could not find the time and fund? Take a bold trip alone or a quick trip with someone. You deserve it! Using your tax refund kind of feels like enjoying the chunk of tax you worked hard for, but never seen throughout the year. I suggest checking out Living Social or Groupon to save more money 🙂
Are you finally debt free? Planning on a new step? A new house? A new car? By all means, tuck all that refund into savings. It is best to have a separate bank account solely for savings if you don’t trust yourself enough to control your urge to make quick savings to checking transfers. Let it collect dividend and keep stacking up your savings.
4. Put aside
If you have extra income on the side and know you will be making more money than you did the previous year and you are worried you might end up paying taxes the following year, put aside. You can leave it into your savings (such as Tip #3 above) and if you end up paying taxes the following year, you will not have to worry about how you will pay for it in full and on time.
We paid $4k in tax last year and since we did our tax at the last minute and very little in savings, we had no choice but to pay it in full using our credit card 😦 Do not make that mistake.
5. Start an emergency fund
You never know when an emergency will pop up and you are low on fund. You can either do it in the form of a secret cash stash or lump it into your savings account (such as Tip #3). By the way, buying a new pair of heels or the newest Yeezy is not an emergency, haha. Just a slight reminded, guys. You will thank yourself later in the future for it (such as doctor visit, medicine, vet, dental, transportation related, etc.)
Many people use their tax refund as a means to catch up on all the latest things they were not able to purchase throughout the year. Please don’t be those people. Yes, it is good to treat yourself once in awhile because we all deserve something here and there. But everyone does not have the same plan, vision, or same place in life. To each his own. Just spend your tax refund wisely because how you decide to spend it when that direct deposit hits your bank account, it will impact the rest of your year, financially 🙂