(WXYZ) - It’s tax refund time and most of us are already thinking about ways we can put that money to use, but before you make any plans, we’ve some suggestions for you so you don’t waste your money.
Yes, many of us have dreams of using the refund for a great vacation. But in many cases, that money can be better spent to give you financial piece of mind. Robin Thompson from Budget Wise Consulting suggests you start with catching up on those unpaid bills.
“Especially if those have been sold to a collection agency, you may be able to bargain and settle the debt,” she explains.
Tackling debt Vs. Emergency fund
I talked to Robin about balancing tackling credit card debt and that all important emergency fund.
“Here’s the priority… If you have any form of consumer debt, I want you to have a starter emergency fund, that’s going to be somewhere around one-to-three thousand dollars, just to create that initial base layer of security,” Robin explains. “And then we’re going to switch to paying off debt. But if you don’t have any credit card debt, then we want to switch over to a fully funded emergency fund, which is at least six months of essential living expenses.
If those things are taken care of, focus on saving for pop-up bills like car insurance or property taxes.
“We know that they’re coming, but we sometimes don’t plan for them throughout the year.”
Saving for retirement
And don’t forget, saving for retirement is always a good idea. Whether it’s contributing more to your 401k or an IRA, saving money now can help you do more of what you enjoy later in life.
Adjust your withholdings?
And keep in mind, when you get a tax refund, that means you’ve been giving the government a tax-free loan. The average tax refund for the past couple of years has been anywhere from 28-hundred to 3- thousand dollars. This is money you’re overpaying. You might want to consider adjusting your withholdings to get more of that money in your paycheck throughout the year… just be smart with it!