So it’s tax time. Are you getting a refund? If so, there are some really smart ways to use it and also some really dumb ways. Here are some of the dumb ways followed by a smarter solution…
1) Not paying Down Debt. Yes, believe it or not, paying debts is not tops on the list when the tax refunds begin. Many people would rather use their refund for “fun” stuff or even increase their debt load by using it as a down payment for even more debt.
Solution: The first place that any tax refund money should go is consumer debt. Why on earth would you spend it on anything else except that gaping hole in your wallet that is bleeding money every month via interest charges? Start the debt snowball or debt avalanche, whichever you prefer, and start the ball rolling with your refund.
2) Eating Out.
Ugh. Really? You are going to blow a big chunk of that refund on overpriced food? Those burgers or sushi rolls better be really darn memorable!!
Solution: Only allow for one nice meal with the family. If you have anything left you WANT to spend on food, try a herdshare or prepay for a spring/summer CSA share.
3) New Furniture.
The amount of people that go and buy new furniture sets is crazy. There is a reason why so many furniture stores advertise during this time of year. Do you really need a new dining set, bedroom set, or theatre style recliners?
Solution: If you do want to replace a few worn out pieces of furniture try Craiglist or the Facebook marketplace first. Also garage and estate sales. Get something slightly used and much cheaper.
4) Not Investing It
For many people tax refund time can be the biggest chunk of money they get all at once. It is easy to go crazy but you can turn that refund into even more money if you are smart.
Solution: Make sure you are funding a Roth IRA every year and if you have some left over, mutual funds are a good way to go.
5) Not Saving It
The amount of people who have no emergency fund is staggering. They have no financial umbrella in the event of a storm such as job loss, the breakdown of a car, or a serious illness. These curveballs cause many people to go into massive debt or even bankruptcy.
Solution: Use all or part of your refund to start an emergency fund if you don’t already have one. If you have debt you need to pay off then a small baby fund of $1000 can get you started until you are debt free. Everyone needs to self insure against life’s emergencies.