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How To Put Your Tax Refund To Good Use

It's tax return season, and your refund may be coming soon. You may have goals for your future, such as saving for a vacation or paying down debt. How do you stick to the goals you set at the beginning of the year when you get your tax refund? Here are four tips on how you can save, budget, and even spend your tax refund.

Person counting coins
Photo by Towfiqu barbhuiya on Unsplash

Create A Budget

A budget for your tax refund can help you spend it in the areas that you designate are the most important. You may need your tax refund to pay for rent, groceries, childcare, saving for an emergency fund, or your child's education. Creating a budget for your refund can help you ensure that every dollar is helping you achieve your goals. Once you determine how much your refund will be, create a list of how much you are going to pay towards each category. For example, will you spend $600 toward your rent, $500 to start an emergency savings account, and $100 on entertainment? Having your tax refund budgeted in advance can help you achieve your savings and spending goals.

See my feature on Yahoo where I discuss 8 Simple Ways for People in Their 20's Can Begin Saving Now

Create a Debt Action Plan

Sometimes debt can get out of hand. It seems like it's a never-ending cycle of juggling to pay one credit card bill or loan after another. Using your tax refund to create a debt action plan can help you eliminate or reduce your debt. There are a couple of ways that you can pay off your debt. 

The first one is to pay off the smallest debts first. If you have a $100 credit card bill, you can start here and subsequently tackle your more significant debts. Paying off smaller debts and working on the increasingly larger ones can help you reduce the number of creditors you owe money to. The second method is to pay off your high-interest accounts first. If you have one credit card where you pay 23% interest and another you pay 6% interest to, then paying off the higher interest rate credit card can eliminate the extra fees you are paying towards your purchases.

See my feature in 11 Best Personal Finance Formulae To Live By

Plan To Save

If you have a debt plan or limited debt, you can save your tax refund. You can save your tax refund for a future vacation, emergencies, car purchase, or any other future goals on the horizon. Saving all or a portion of your tax refund can help you achieve your savings goals and reduce the need to borrow money in the future. So, how do you save your tax refund? When filing your taxes, you can choose to have your tax refund direct deposited directly into your savings account. This way, you're not tempted to spend the money when it gets deposited into your checking account. You can also purchase savings bonds with your tax refund. Buying savings bonds is an option when working with a tax refund preparer or filing your taxes on your own. Both of these options allow you to build your savings and gain interest on your deposits. 

Spend A Portion

Sometimes we have to treat ourselves or our family, and spending a portion of your tax refund can help you do just that. Whether you want to have dinner out, go to the movies, or get your hair professionally done, treating yourself with a portion of your tax refund is okay. Just be mindful of your other goals and predetermine the amount of your tax refund that you want to use to treat yourself. 

Whatever option you choose to manage your tax refund, ensure that your money works for you and not against you.

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