A tax refund can feel a bit like winning the lotto. There is a rush of euphoria, followed by a shopping spree of ideas where that money could go. If you expect a refund this year; instead of going on a cruise or buying a new TV, decide to create a more stable foundation with the windfall.
- Plan where the money will go before it comes in. This allows you to sleep on it for a while. If something does not feel right, change your decision and sleep on it some more.
- Use percentages. If the actual refund amount is unknown, decide where the money will go based on rough percentages. One year we decided to put 50% on debt, 25% in emergency savings and 25% toward all holiday gifts for the coming year.
- Do what feels comfortable to you. Do not put all your money on a debt because it seems like the right thing, only to worry all year because there is no cash if a big medical or car bill were to happen. Wait until your head and your gut (and your partner) are all in agreement before you act.
A tax refund is not free money. It is money you worked for and loaned the government (interest free). This irregular income is an excellent time to get ahead on a goal. Investing in financial goals, rather than the newest gadget, will always lead to building a more secure future.
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