It’s that time of year again and I’m not talking about spring. Its tax season and hopefully you are getting a nice surprise this year from Uncle Sam. But, don’t go blow it on that nice new 3D LED TV you’ve been lusting after. Take some time to plan things out and spend that refund wisely. Check out these five tips to manage that windfall of cash before it’s all gone:
Make a budget before you do anything.
Extra money in your pocket seems to burn a hole in it and its gone before you know it. Take some time to plan out how you are going to spend that money so that you can spend it on things that are worthwhile instead of on impulse buys that you may regret later.
Don’t spend it before you’ve got it.
Don’t make purchases on your credit cards thinking that you’ll pay them off once your get your refund. Don’t make any down payments on anything either. We don’t know what unexpected things may come up and we don’t want to spend money that we don’t have yet.
Put a third away into savings right away.
It’s important to have ample savings for emergencies. You should have at least three to six months worth of income saved for the unexpected. You may also be saving for an important goal like retirement or a new car. Your refund is a great way to accelerate your progress on your savings.
Pick a debt to pay off.
Do you have a credit card bill that you have been struggling with for a while? Maybe you have a few medical bills that you are working on? Now is the time to get them paid off and get rid of the stress of having to make payments each month.
Splurge a little.
It’s okay to have some fun and live a little! Take the family out to dinner or buy yourself something you’ve been wanting. Just splurge in moderation. One rule of thumb would be to limit your splurge to 5% of your refund.
One last note on refunds: If you find yourself with a huge refund each year, but you struggle paycheck to paycheck each month, you may consider adjusting your withholdings so that you get more in your paycheck each month to cover your monthly expenses. Just talk to your payroll department to fill out a new W-4.