Stop me if you’ve heard this one—or experienced it for yourself: After doing your taxes and realizing you’ll get a refund, you spend a few weeks dreaming about everything you’ll do with your financial “windfall.” When the money finally arrives, you deposit it in your checking account and gaze adoringly at the too-good-to-be-true balance. But instead of following a spending plan, you decide to take a little budgeting break. Then, before you know it, the extra money is gone. Sound familiar? Yeah. Been there. Done that. Learned my lesson.
If you want to make the most out of your tax refund, follow my four favorite tips:
Establish an emergency account.
First things first, set aside $1,000 in a rainy-day fund. That should be your top priority. Yes, even before paying off debt.
Pay down debt.
Do you have high-interest debts? Pay them down with that refund! Start with your lowest balance and pay it off first. Then, move to the next smallest debt. And so on, and so on.
Make a major purchase.
Your refund can provide you the opportunity to address some deferred maintenance issues that will protect your investments, make you safer, or improve the quality of your life.
You have worked hard all year, so reward yourself with a little self-indulgence. Take a spa day. Splurge on that accessory you’ve wanted. After being smart with your money, you’ve earned it!