1. Pay Down Debt with Your Tax Refund
If you have accumulated debt, now would be a good time to start paying it down. I actually have a debt reduction form that you can use on my recommendations page. On it, list your debts smallest to largest, regardless of the interest rate. This method is known as the Debt Snowball which was created by Dave Ramsey. The idea is that you build up momentum by being able to pay off the small debts first and take the payment you were making on the previous debt and rolling it into the next one. My wife and I used this method and paid off $52,000 in 18 months.
2. Establish an Emergency Fund
If you don’t have at least 3 months of expenses saved up in an emergency fund, I would get rolling on that. To determine the amount you need to save, total your monthly expenses including your mortgage/rent payment, then multiply that number by 3. Why do I say 3 months? Don’t most people say 3-6 months? Yes, but I am all about making goals that are attainable and that people would be motivated to do. Therefore 3 months is a lot more realistic in a short period of time. I would love for everyone to have 6 months worth, but let’s set the initial bar at 3 months.
3. Do Something Memorable
Do something that tells your family you love them. If you have no debt and you have already established an emergency fund, this would be a great option for you. Take a trip with your family, go out to dinner, or do something on your Bucketlist. In the end it is not how much money you have, but how much value you added to those you love.
As a closing note, if you are getting a large refund, in effect what you are doing is loaning your money to the government for 1 year with 0% interest. I would suggest that you adjust your withholding’s with the goal of getting nothing back. This way you have the use of the money instead of the government and you can put it towards getting your financial house in order.
P.S. If you are wondering your refund you can find out the status by clicking Where’s My Refund?