Tax Day is here and many families are getting refund checks from the government. While that’s exciting, it’s easy to waste that money when it comes in.
All too often, extra money makes people splurge, even when they imagine they’re saving it. How do you make sure this year’s windfall makes your life better over the long haul?
Use your tax refund to tackle those high-interest rates on your debt because they can lead to devastating costs.
Eventually, you can end up with payments so large that it becomes difficult to do more than pay the minimum required each month.
Think of this way: Paying off a debt with a 15 percent interest rate is like earning 15 percent, risk-free and tax-free. That’s an investment virtually impossible to find these days.
While paying off high-rate debt first generally makes the most financial sense, it might not work for you.
Some people get more satisfaction from demolishing smaller debts first. Then, as they see those debts fall by the wayside, they have more motivation to tackle bigger debts. Remember, be careful not to run up new debt and dig yourself back into the same hole.
If you are debt-free and getting a refund, starting to strengthen your financial safety net may be the next best use of that money.
Opinions differ on how much to save for emergencies. Many experts advise keeping enough money to cover expenses for six months or longer.
Ask yourself: If you lost a job, how long could you expect to be unemployed? Your savings should be greater if you’re older because it often takes older workers longer to find work.
Whether it’s for your own education or your children’s schooling, apply your refund check to a college savings plan. That plan not only offers tax benefits, but it also helps save money for college.
Finally, you can use your refund by donating some of it to your charity. By doing good for others, you can help yourself earn a healthy deduction on your taxable income in the next round. Make sure to get a receipt for your contribution, and be sure the organization you support is a legitimate charity, as defined by the IRS.
If you have a consumer question for Don Date, send him an email at email@example.com or call his 6 On Your Side Hotline at (865) 633-5974.