I know not everyone is happy about the tax changes for 2018, but most people will benefit, at least a little, from the changes. With the changes to the tax code, some of you may be getting a slightly larger than usual refund for the 2018 year. Whether your refund increases or not, there are some smart ways to use 2017’s “bonus” money (your refund) to help begin and end 2018 in a better place financially.
According to Debt.org, adding to or starting a savings is what the majority of people will do with at least part of their refund, which is certainly a wise thing to do. This could mean increasing the amount in your emergency fund, starting or adding to your retirement fund or some other form of savings. Different from saving, putting money toward a goal, like a vacation or a new toy, is a good idea, as well. This helps to ensure that you do not have to borrow money to pay for those things, which could increase your debt.
The second most common use of refund money is paying off debt. According to Michael Keeler, a certified financial planner at Peak Financial Solution,”Job one, job two, and job three are to pay off high-rate credit card debt.” Similarly, Martha Filipic, of The Ohio State University, explains that paying down credit card debt is like adding to your savings, since most cards charge 13-23% interest on any balance. Other uses for your refund might include paying for things like home improvement, auto maintenance, traveling, investing in your health, or helping others.
Finally, you should develop a plan as to how you will use your refund before you ever get it. As my colleague urged in a recent blog, creating a budget can help you figure out the best way to “spend” your refund. Whether putting it toward your debt, adding it to your savings, or putting it aside for something fun, you might help feel more confident of spending that refund wisely if you develop a plan and budget before cashing your check from Uncle Sam.