What Do I Do With My Tax Refund?
- Tawra Kellam LivingOnADime.com
- 2010 3 Mar
It's that time of year when all that "free" money starts rolling in. I'm talking about the bonus money, you know -- the fun money (otherwise known as our tax refund)! That is the way so many of us think of a tax refund, and five minutes after we spend this year's refund we are already thinking about what we are going to do with next year's money.
Many of us look at that return almost as if we have won the lottery. I mean a $1,000 tax return can buy a car, furniture, big screen TV, or a family vacation all in one fell swoop. It's our mad money, our fun money.
It you have debt, it is none of the above. It is not mad money. It is an opportunity to move closer to getting out of the debt you have already committed to pay.
Use common sense and wisdom when it comes to spending that tax return. It is no different than a regular paycheck. In fact, that tax refund is actually part of the salary you make. It is not a bonus, but because it has been protected from your usual spending habits, it is more income available to pay your debts. Once you pay off those debts, a tax refund can be a great opportunity to start a savings account.
We get so many questions from panicked people asking how to build an emergency fund. Instead of throwing away that tax return money on something that gives you instant pleasure, set aside that tax return for an emergency (keeping in mind that even most "emergencies" are not true emergencies). Once your debts are paid and you have enough savings, then use your refund for fun.
We live in a society where we tend to put the cart before the horse. People used to get married and then have children, but now it is common to have children and then get married. We used to carefully save our money and buy what we wanted from our stockpile, but now we charge what we want and later try to figure out how to get the money to pay for it.
Because of how we think about credit, some of us don't give any serious thought to paying for something until it is worn out and we want to buy the next one. Once the item is worn out, how do most of us feel about still paying for it? "It's not fair that I have to pay for this, and I don't even have it anymore..." It's stressful, isn't it? Avoid the stress. Pay off what you owe now and stop buying things on credit.
If you are behind on your credit payments or not making the payments at all, use your tax refund as an opportunity to get current. When we buy an item on credit or with our credit card we are saying, "If you let me have this product now, I promise (vow) to give you money for it later." When we don't pay our credit card bills it is no different than walking into a store, filling a basket with whatever we want and walking out with it. To my knowledge that is still called stealing.
When you literally put the cart before the horse, (kids before marriage, buying and then trying to save money to pay for something, etc.) it causes extra stress in your life and will make it much harder to get where you are going. So re-think not only how to use your tax refunds more wisely, but give the same consideration to any other "extra" money that comes into your life.
Once you get a handle on your debt and your spending habits, you will be surprised how far your money will go. Start by making a wise decision about your tax refund.
March 26, 2010
Tawra Kellam is the editor of http://www.LivingOnaDime.com/. Tawra and her husband paid off $20,000 debt in 5 years on $22,000 a year income.