For many, tax season can be one of the most stressful times of the year, but it can be a thrilling time for those who actually receive an income tax refund.
According to the Internal Revenue Service, as of Feb. 28, 2015 the average refund this year is $3,034, up three percent compared to the average refund amount for the same time last year. Now weather your return is more or less, in general, this usually means a much anticipated lump sum deposit of some kind into your bank account.
As you await the return, the question of what to do with the new allotted funds, quickly arises and though the idea of exotic vacations, online shopping sprees, and other low return on investment purchases are top of mind, this may be the perfect time to think smart about how to spend your money.
Tonya Rapley, owner of MyFabFinance.com and a millennial money coach, hosts an online YouTube show titled, “Talk Money with Tanya”, where she offers advice on how to make smart financial decisions. On her latest episode she discusses smart uses for your tax return, telling you what to keep in mind when making tax return decisions and what some of your smart options are. Rapley’s suggestions highlight long term goals that, over time, may improve your entire financial situation. She says ridding ones credit of personal debt, investing and establishing an emergency savings are great places to start.
1. Begin an emergency savings fund
“If you don’t have an emergency savings fund, now is the time to set up an emergency savings fund”, suggests Rapely.
Neighbor Works America conducted its second annual consumer finance survey and found that approximately 34% of Americans don’t have any emergency savings, 47% of those American’s being black families. You definitely want to make sure, should anything unexpected occur, your basic expenses are covered.
2. Settle outstanding debts
This is a great time to address outstanding debts and consider making a settlement with that harassing collection company. But, when deciding to settle, be sure to do your research, you don’t want to pay more than you are obligated to”.
“I also think that you should consult with someone who is versed in credit and settlements before just giving them all of your money, because you might not have to”, Explains Rapley
3. Consider investing
What about investments? For some, talk of the stock market mutual funds are unfamiliar and intimidating territory, in fact Rapley says, most people are under the impression that they need a significant amount of money to get started investing but she thinks “It’s all relative.”
A sum as small as $500 may be just the right amount to put way in a mutual fund or even enough to begin investing in the stock market.
The wealth building guru is sure to add that financial situations and recommendations “Are not one size fit all”, so what works for others may not always work for you.
“You have to think about your financial picture when you’re thinking about how to use your tax refund, “said Rapley, “but also think about what your particular financial goals are.”