So you received your tax return… now what? Whatever the size of your return – larger or smaller than expected – it’s important to ensure you’re making the right moves with this lump sum of cash that’s heading your way. Here’s a few simple things you should do when your IRS tax refund hits:
Create an emergency fund: If you don’t have money set aside for when the unexpected happens, this is the perfect opportunity to do so. It could be a job loss, a medical emergency, or a necessary home or car repair that happens at the worst time. If you’re starting from $0, setting aside $500 is a great start. After that, aim for one month’s worth of living expenses. Using your refund to be prepared to take on any bad situation is sure to be a huge stress-reliever.
Pay off your debt: Using your tax return to catch up on missed payments on loans or credit cards is a great way to catch up, and an even better way to get ahead if you can. If you have a significant amount of high-interest debt, paying that off before putting in low-yield savings or investing is the smartest move.
Send it to savings: Have your direct deposit, or a portion of it, go right to your savings. Speed up to your savings goal whatever it may be – new car, new house, college, vacation, etc. Think out of sight out of mind (until you need it, of course).
Invest: You work hard, so it’s time to make your money work for you. There’s numerous ways to invest your money, ranging from the stock market to CDs. Weigh how risky you can be and evaluate if you’ll be needing this money in the foreseeable future. If you are not in immediate financial need, investing is an excellent way to set yourself up for success.
Fund your future: Use your funds to kick-start or grow your retirement fund. Having a Roth or Traditional IRA plan in place as early as you can is an excellent way to set yourself up for a future of no financial stress. You may not see the benefits now, but your future self will thank you.
Buy life insurance: This is one that’s not typically top-of-mind, for obvious reasons. With that being said, though, having life insurance is one of the best things you can do for yourself, and especially your spouse and your family. For just a portion of your tax return, purchasing a life insurance policy early on at a low cost can allow your family to maintain their standard of living if the unthinkable happens.
Remember, your tax return is not simply the government sending you a bonus check. Rather, it’s money that was yours all along. It’s alright to set aside a portion of refund for spending, but that’s all it should be – a portion. Think about your financial goals and use your refund to help reach them faster!
For more information on savings accounts offered by Penn Community Bank, visit penncommunitybank.com.