Are you expecting a tax refund like 46% of people in this country? Although I think tax refunds are a colossal waste of money (you basically allow the government to hold your money all year, interest free), they do represent an annual windfall sum that many receive. So what should you do with it?
Glad you asked.
Assuming you are not yet debt free, we have a few suggestions.
- Create a Mad Money Fund. Do you have at least $1000 in a savings account while you are digging out of debt? A refund can get you started.
- Make a dent in your debt. You can apply all or a large portion of your refund to existing debt. That infusion of cash can be a wonderful motivating event!
- Pay off an old debt. Do you have some old debt that’s dormant (meaning creditors are not calling), but could be bringing down your credit score? Use this lump sum to help you negotiate settlement of any outstanding old debts.
- Build your emergency fund. If you have taken care of the Mad Money Fund and wiped out your non-mortgage, consumer debt; then you should start on a 6-month emergency fund. This fund should equal 6 months of your basic living expenses.
- Start a big ticket item fund. Are you in the market for a home theatre system, new oven, car, or house? Maybe an African safari on the Serengeti? Since we don’t condone payments & conclude credit cards are evil, saving for those items can begin with a lump sum from your refund check.
- Give! We are blessed to be a blessing. Consider donating to a cause, organization, or helping a friend in need. Mom always said, “when you give, you’ll always have to give.”
Whatever your plans, we hope you make good progress on your financial goals. Remember, you become debt free on purpose.