How to use your tax refund smartly?
Most of us look forward to receiving our refunds as if it were a gift (from the IRS). The reality is that it was our money all along – but it does feel good to receive it. And those of us who file our taxes online, the refund came even faster.
So what will you do with your refund?
As Oprah talks about our debt diet, it is a good idea to use your refund wisely. While each situation is different, KeyBank has some general guidelines on what to do with your refund:
- Adjust your W-4 so that you’re not overpaying Uncle Sam throughout the year. Then set aside the money the government would otherwise be holding for you, so you can earn interest on your savings. In other words, if you are getting a big refund, you did not plan well. The US Government – not you – earned the interest on your hard-earned money.
- Establish or contribute to your emergency fund.
- Emergency fund in good shape? Pay off or pay down your highest interest credit card loans.
- Credit cards in order? Pay off or pay down a long-term loan or line of credit (home equity, car loan, etc.).
- No long-term loans or lines of credit? Pay off other creditors (friend, relative, appliance, or furniture store).
- Still have money left? Pay down your mortgage or contribute to an education fund or IRA – wherever the return on your money is most assured.
And if you still don’t know what to do with the money left, then you deserve to spend it any way you like. You seem to have worked hard, invested wisely, and deserve to go on a vacation or buy a nice car or just give it away to people in need.
Recommended articles: Debt relief tips – Setting retirement goals
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