Smart Moves for Your Tax Return
4/2/2018 10:06:07 PM
Tax Return

Not many people get excited when tax season arrives, but the end result of a mind-numbing day of entering W2s and itemizing deductions can be a hefty tax return in your pocket. When that return hits your bank account, no one has to tell you twice to start spending it, but there are better ways to invest, save, and responsibly splurge when you have a few extra dollar bills. Chad Miller, COO of Southwest Louisiana Credit Union, suggests following the 50-25-25 plan for your tax return.

"When you have a good-sized tax return, or if you suddenly come into any extra cash, it’s always a good rule of thumb to put half of it toward reducing your debt,” said Miller. "The average household in America with credit card debt has a balance of over $8,000, and that can quickly get out of hand with high interest rates that stack up an enormous amount of interest over time if you don’t get serious about reducing your debt.”

If you have more than one credit card with a balance, start paying off the one with the highest interest rate, like retail credit cards. If you can use half your tax return to entirely pay off one card, that’s even better. If you only pay the minimum balance due on credit cards or if you are hit with late fees, you can find yourself barely keeping your head above water. When tackling credit card debt, it’s best to really dedicate time and money toward reducing it so that you don’t end up paying more in the long run.

"Debt consolidation can also be the key to managing debt across multiple credit cards,” said Miller. "It allows you to put all of your credit card debt under one roof, and you’ll pay only one monthly payment instead of several. Many debt consolidation loans come with a lower interest rate to help you save money.”

A good quarter of your tax return should also go toward starting or growing an emergency fund. Nearly 57 million Americans have no emergency savings, which puts them at risk for a financial crisis if large, sudden expenses pop up, such as a medical expense or damage to your home. 

"It’s ideal to have a few months of expenses put aside in an emergency fund, but something is always better than nothing,” said Miller. "We never know when a hurricane will hit or when your kid breaks an arm, so we need to be as prepared as possible for the unknown.”

Growing an emergency fund is also a good habit to keep in place throughout the year. Even just putting aside $25 a paycheck can help build up savings.
"Of course we don’t expect everyone to invest 100% of their tax return,” said Miller. "Splurging responsibly on that handbag you’ve had your eye on or a family vacation you’ve been dreaming about can do wonders for your mental well-being.”

The last 25 percent of your tax return should be for you. Keeping yourself happy is a big part of staying healthy, so take a look at your Amazon Wish List and treat yourself to something you wouldn’t normally buy on a regular day. You deserve it.

For more tips and ideas on how to reduce debt or make a budget, visit www.SWLACU.com or call Southwest Louisiana Credit Union at 337-477-9190.
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