Everyone waits excitedly for the moment when our beloved tax refund arrives. We plan and ponder what we're going to spend it on while we wait! Craving an early phone upgrade? What about a new laptop? Well, before you spend that money in your head, it's worth looking at your budget to see where the money would BEST be spent.
Year in Review
How do your finances look? If you're in a place where you don't have to worry about paying off a debt, or you're saving for a major purchase in the near future, there's nothing wrong with spoiling yourself a little bit. If you have debts to pay, credit card balances that have been carrying over for months, or you're trying to save for a down payment on a new home, perhaps it's not the best time to be spending your tax refund on something that's not a priority.
What is the most pressing item on your financial plate right now? That's where your priorities should be. If there are leftover funds from your tax refund after you tend to your first priority, move to the next. Priorities should be ordered according to which is most important to your family's well-being. Shelter, food and medical expenses should never be at the bottom of the list. Conversely, things like personal debts owed to family members or friends and entertainment expenses should never be at the top of the list, but should certainly be addressed.
What are Some Healthy Financial Choices?
Depending on the refund amount you plan on receiving, you probably have several smart options. If you're just expecting a few hundred dollars, this money may best be spent on something that will help prevent you from spending even MORE money in the future. Small home or auto repairs now could help prevent larger problems from occurring that may end up costing you quite a bit more than your tax refund would cover. Expecting a hefty amount? Installing all new insulated windows in your home will surely lower your heating bill in the winter. If there are no repairs you can make, put the money toward your most pressing financial issue, whether that means paying down a debt or building an emergency fund.
You don't have to spend all of your tax refund in one place. Look carefully at your options and allocate your funds according to what you think needs the most attention. Part of your tax refund could pay off another installment of a credit card bill, while the other half goes right into your emergency fund. How you allocate your funds depends entirely on your personal financial situation. Before you decide, take into account your interest rates, how much you owe, if another late payment will cause you to go into default, and anything else that may affect your finances negatively.