If you’re expecting a tax refund then it’s a good idea to make some plans for the money so that you can make the most of it. If you don’t allocate the money then you’ll have spent it before you know it. I’ve been there and it’s not a good feeling to realize that it’s gone or maybe even gone and then some.
As of the end of February, 83% of tax returns have received a refund and the average refund is $3,120 for refunds processed so far in 2015. This is from an article on the CNN Money site. So it’s likely that you’re going to get a refund or have already received one and it may be substantial.
I’m going to cover a few tips to maximize your refund so that it doesn’t go poof. It’s okay to budget some of your refund for luxury or entertainment if you’re in the right place financially.
Here are five ways to maximize your tax refund.
- Pay Off a Debt or Two - It's important that you get out of debt and using a good portion of your tax refund to pay it down would be a smart move. Remember that the debtor is slave to the lender.
- Emergency Fund - You should have six month of expenses saved up. If you don't then put some or all of your refund into your emergency fund. There will be a rainy day.
- Invest - If you're debt free then throw some of your tax refund into a Roth IRA.
- Save - Put some cash back for something that you know is coming up later in the year. Maybe you know that your car is going to need tires or you need to do some repairs on your home before the next winter season. It could be that you want to take a trip. Save your refund so that you can pay cash and avoid putting any of the trip on credit.
- Give - This may be a good opportunity for you to bless someone with a financial gift, make a nice donation to your favorite charity, or give for a special offering at church.
You could use the JARS System as well to put your tax refund to good use which gets a little more specific. This allocates money to different areas as follows.
- 55% for necessities
- 10% going to investments and building passive income streams
- 10% for education
- 10% to long term savings for spending
- 10% for play
- 5% going to giving
I’m simply trying to get you to think about and plan for your tax refund. I hope that it hasn’t disappeared already!
Please comment with your tactics for maximizing your tax refund.
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