One of my favorite places to go and get financial advice is Joe Sangl’s web site. He is the Pastor of Financial Planning at my church and travels around the country teaching seminars on money.
He recently wrote about maximizing your tax refund and I wanted to share it with you.
Before You Spend It, Plan It
We all start dreaming about how we’ll spend our new wad of cash that we receive over the next few months. Some say they’ll take a vacation, make home improvements, pay student loans, etc. Joe suggests that before you spend your refund, plan it out first.
Fill Your Emergency Buffer Fund
You need at least $1,000 for your Emergency Buffer Fund, says Joe. If you have a house or children, you really need $2,500. Use your refund and fill it up!
Fund Your Known, Upcoming Non-Monthly Expenses
These non-monthly expenses include: Christmas, vacations, taxes, insurance premiums, health club membership fees or homeowner’s association dues. If you haven’t saved for these already, when they show up it can really throw you for a loop.
Eliminate Debt
First, make sure you take care of the two items above and then you can work on paying off your debt!
Fulfill Some Dreams
If you already have an emergency fund, you have saved for non-monthly expenses and are debt-free, you can use your refund for your dreams, says Joe. Give to others, invest in an IRA and/or treat yourself to something fabulous. Just make sure you get a great deal.
Should You Even Receive A Refund?
If you can abide by your budget every month, you could consider increasing your W-4 exemptions so you come close to breaking even at tax time, he suggests. But if you haven’t proven to yourself that you can follow a budget, Joe recommends leaving your exemptions alone. Focus on money management first.