Wednesday, April 4, 2018

Strategic spending of the tax refund check

Kari Lewis, MSU Extension - Glacier county

April is tax time, which brings about numerous ads for ‘Tax Refund sales.’  Whether it’s a tax refund, inheritance check, or capital credit check, whenever unplanned money arrives it can be tempting to quickly spend it.  However, this is an excellent time to evaluate where you can most strategically use that money to benefit yourself and your family the most. 
First, make sure that you have money saved for potential emergency expenses.  According to a 2016 GOBankingRates survey, 69% of all adults in the US have less than $1,000 in savings, with half of those adults not having any savings.  In the event that a vehicle needs a new engine, the refrigerator goes out, the hot water heater needs repaired, or you end up needing to pay your $500 insurance deductible for medical expenses, where does that money come from?  Now is a great time to lock away $500 to $1,000 in an ‘emergency fund’ for potential emergency or ‘occasional’ expenses that need money set aside for them.
Secondly, evaluate any deb  Do you have any unpaid bills that you have gotten behind on, or debts that need paid?  Choose which debts are smallest and knock those off first.  That will provide motivation for continuing to address any remaining debt.  If you have two debts of similar amounts, choose the one with the higher interest rate.  Now is the time to pay off those credit cards and cut them up!  In my household, we plan to put a portion of any additional income we receive towards our home mortgage with the goal of paying our house off early, which will save us thousands of dollars in interest expenses over the course of the loan. 
ts you have.
Next, put money towards a 3 to 6-month emergency fund – If you were to lose your job or had an injury or medical expense that prohibited you from working, would you be able to cover your monthly expenses?  Make sure to budget enough in an ‘emergency fund’ to cover things like housing, utilities, groceries, fuel, any loan payments you have, etc.  Putting any additional money towards an emergency fund is a wise option that can give incredible peace of mind in the months to come and help prevent the temptation of using high-interest credit cards to cover those expenses.
If you do decide to spend a portion of the money from a tax refund, inheritance, or capital credit check, think of what upcoming expenses you may have this summer and spend the money on those expenses.  Expenses such as daycare while school is out, a child’s summer camp expenses, graduation and wedding gifts, back to school supplies, etc. will be here soon. 
When tax refund checks arrive in the mail, the temptation can be high to take advantage of those ‘tax refund sales.’  However, ensuring you have at least $1,000 in the bank, that debts are paid down, and that you have a 3 to 6-month emergency fund in place will have a far greater impact in the long term. 

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