top of page

Make your tax refund last forever!

It’s Tax Season! Or more importantly for some of us, it’s Tax Refund Season! It’s like Christmas for adults. According to the IRS, the average refund in 2019 is over $1900. Many of us get more. It’s the one time of year when we don’t have to worry about money, and we are able to buy whatever we want. So, what are you going to do with the money? Are you going to spend it all on a vacation? Buy a new iPhone? Or just blow through it without any idea of where it went? I have a different idea. Instead of using your tax refund to have fun for a few weeks, how about using it to set up a foundation that you can enjoy for the rest of your life. I recommend doing the following in this order with your tax refund: 1. Build your starter emergency fund. I recommend having a starter emergency fund of $1,500 - $2,000. If you have not already accomplished this step, this should be your first priority.

2. Have a little fun with it. This step is optional and should be skipped if your emergency fund isn't built, or if other needs are not met, but you may find it easier to work hard when you reward yourself a little every once in a while. Spend about 10% of your refund however you would like. Go on a small trip to the beach, buy some clothes, go out to dinner. But don’t spend more than 10%. That means that if your refund is $1,900, you are not spending more than $190 on this step. 3. Save cash for a large irregular need such as tires, car repair, home repair… I stress that this must be a need. We are not buying new furniture, a new cell phone, hair dos with your refund until after you have completed all of these steps. Take this step only if you are unable to (or just didn't) fit this expense into your normal monthly budget. We recommend this so that you do not go into debt for this need. 4. Payoff debt: Start with your debt that has the smallest balance, and use the Debt Snowball method. If you paid off all of your debt and still have money left, move to step 4. 5. Use it to build your 3 to 6 month emergency fund. For most households, this will require $10,000 - $15,000

6. Save for a larger goal. Maybe its college tuition for your kid, car replacement, or a down-payment for a house.

If you follow these steps, you will not get to enjoy spending the money now, but you will create a foundation that will begin to transform your life financially, leading to much better rewards in the future.

Related Posts

See All
bottom of page