Are you expecting a tax refund from your federal income taxes? NerdWallet’s new report anticipates that on average, individuals can expect to receive $1,861. Hmmm so what to do with that cash? The urge to buy a new flat screen TV with this ‘found’ money from a tax return, or splurge on a tropical beach vacation is understandable. Given the freezing temperatures we’ve been experiencing, the warm sun sounds like a dream! But before buying that airline ticket, consider three more practical (and fiscally responsible) options:
It’s not a very glamorous way to spend money from the government (*ahem* it’s actually YOUR money) but it’s an excellent stepping stone to financial literacy. Debt loads from the holidays can sometimes take people until the next Christmas season to pay off. Having unpaid debt is stressful, especially long after the holidays after over. Do yourself a favor and remove that debt from hanging over your head for 2019.
#2) Save for a rainy day
The most recent government shutdown highlighted the scary reality that 4 out of 5 American workers live paycheck to paycheck. An emergency fund can help to bridge the gap when unexpected expenses, layoffs and illness do strike. It’s recommended to have several months of living expenses tucked away for that ‘just in case’. This scenario can be tough to budget for during the year, so having a chunk of money you ‘won’t miss’ going towards starting an emergency fund makes the process easier and more rewarding. Continuing to top off the emergency fund with small, monthly deposits and you will see the amount rise quickly, leading towards a proud sense of accomplishment. Plus, you’ll have money saved for when you need it!
#3) Increase your market value
You’re the one who gets out of bed and goes to work. Your education, work experience, personality and much more all contribute to your overall earning power. A tax refund could be an excellent opportunity to upgrade a course, get the pro software, or attend a conference which would ultimately be an investment in your work and your future earning potential.
On the flipside, here are 3 things that you should probably refrain from doing with your tax return:
- Gamble it at the casino or on the lottery
- Use it as a down payment for a purchase you can’t afford
- Put the money under your mattress
Spring is just around the corner, so don’t be tempted to buy that pool either! Financial literacy is an option for everyday people. It’s a mix of practical decision making, self-control and planning. Most important, it’s knowing that there are options available for you to responsibly improve your social and economical status, no matter who you are. But you must educate yourself to those possibilities.