April is not only financial wellness month, but it is also a time when many Americans file their tax returns. Most people dread April for the sheer fact that it is “tax time” but the truth is last year the average refund was around 3k, so it should really be viewed as more of a celebration. The true dilemma becomes more on what to do with the refund. It would be easy (and fun) to book a vacation or go on a shopping spree, but I would urge you to resist this temptation.
Instead let’s look at a few fiscally responsible ways to use the tax refund:
• Pay down high interest bearing debt
o Most credit cards yield an APR around 15%. The longer you wait to pay down this debt the more interest you will continue to pay.
• Contribute additional funds to your retirement account
o There is nothing better than when your money makes you money. What I mean by this is invest early and build your principal. Then let compounding interest take over from there. You will be shocked at what investing an extra 3k now will look like by the time you retire.
• Start to set aside money for buying a home
o Purchasing a home has many benefits but it is not inexpensive. In order to avoid paying PMI (private mortgage insurance) you will need to make a 20% down payment on your home. If you purchase a home for 300k this down payment would be in the 60k range. So start saving now as it will take time and proper budgeting to reach your goals of effectively purchasing a new home.
• Start a reserve fund
o You never know when a hardship will strike. This could come in the form of a medical hardship or a lost job. When it does you will be glad you have stashed some cash away to help weather the storm.
Over the course of your life and career your will have many goals. Do not undervalue the benefit of planning and budgeting for those goals. Proper planning and budgeting will go a long way to achieving your goals and living a financially healthy life. A great place to start in planning for your future is to put your tax refund to good use!
Author: Kyle Rogers, Accounting Supervisor