April 15th, Tax Day, is fast approaching.
Congratulations to those of you that have already have successfully filed your taxes.
If you haven’t filed your taxes yet, it is a good time now to gather all your documents and schedule a session with your tax preparer or get the necessary forms from www.irs.gov if you are a do-it-yourself type.
Last year’s average refund was $3,100, so maybe this is a good motivator to get it done. Once you are done, hopefully you can celebrate with a nice check from Uncle Sam.
With that much money coming back, I am sure the masses will be planning that Vegas trip to let loose or wanting to sail away on a Caribbean cruise. They certainly can justify doing that because they can say, “I earned it.”
I propose a better idea this year, like doing something smart with the money to set the foundation for financial security for you and your family.
What I mean by being smart with it is to save a little of it and put the rest toward paying down some debt.
To illustrate what I propose, I will use last year’s average refund of $3,100.
This is what I would advise. First, take a small portion of the money, 5%, to reward yourself for working so hard. That would amount to $155. Take this money and have fun. Go out to your favorite restaurant, or spend some time at the spa, or buy something on Amazon that you have had your eye on.
After you are done rewarding yourself, then it is time to put the remaining $2,945 to good use.
As a financial coach, I find too many people lack any type of savings to handle even the smallest emergency. Let’s say the transmission goes out on your car, or Johnnie sprains his ankle, or the pipes in the bathroom rupture. Having an emergency fund brings security to people’s lives, knowing they have money saved to handle an emergency instead of having to scramble to find the money or getting themselves deeper in debt by putting it on a credit card.
So, in our example, you would put $1,000 of the $1,945 into an emergency savings account at your local bank or credit union. You will feel a sense of security when this is done.
Now you have $1,945 left. This is still enough to take that Vegas trip, but the money would be better served by tackling your debt load. Paying down debt should be the next step with the money.
I advise clients to pay off people they know first, like their family, friends, or coworkers. I believe strongly that borrowing money from people you know is a bad financial decision. So I always advise paying them off first. Then from there, chipping away at the high-interest debt would be the next step; most likely this will be credit card debt.
So, in 2015, I would suggest doing something different and being smart with your tax refund. Put it to good use and build financial security for you and your family by funding an emergency fund and getting into the habit of paying down debt. You will find that, by doing this, you will be much better off than feeding the one-armed bandit in Vegas.
Tim Mann is a highly sought-after financial coach who meets with local clients in his sunny office in Bermuda Dunes, CA. He is also available remotely by phone, FaceTime, or Skype. He wrote the best-selling book Money on Your Terms and conducts his radio podcast, The Money on Your Terms Show, to educate people on all aspects of money. He is passionate about coaching people on how to get out of debt and learn how to save more.
If you’d like to learn more, please explore the site, sign up for Tim’s FREE newsletter, or get in touch to set up a complimentary consultation at (818) 292-2548.