I’ve always been the tax person for friends and family members who don’t want to wait to get an appointment with an actual tax professional. Oddly enough I enjoy filing simple tax returns and helping out where I can.
And because I do a handful of tax returns for others every year I get to see a range of different income tax refunds. Some are only a couple hundred dollars and the one I most recently did was $8,400.
It probably comes as no surprise to you that the lower your income and the more dependents you have, the more money you get back. It’s probably also no surprise that the lower your income and more dependents you have the more likely you are to be stuck in a paycheck to paycheck cycle.
If you fall in that category, low income but huge income tax refund, here are some things that would be wise to do with your windfall.
Get Fixed What You Need to Get Fixed
If your car breaks down every other week and you have a problem getting to work on time on a consistent basis, get your car fixed. Check around with several different mechanics so that you know that you’re getting a fair price.
If the heating system in your house is malfunctioning check around on prices and get that fixed. If your kids have grown out of their shoes then by all means go get them new shoes.
The point I’m trying to make hear is prioritize.
If there’s something in your life that desperately needs attention, take care of it. But only spend on true needs and not on wants.
Use this money to benefit you and your family in the long run and not to buy short term happiness.
(Because once you blow all of your money on a new wardrobe for your family, a new couch, or a set of rims for you car you’re not going to be able to take care of the things you actually NEED take care of.)
Save the Rest
Yep, that’s right. Save the rest. All of it. This is now your emergency fund.
Now the next time your car breakdowns or in the event that you lose your job you’ll have money to fall back on. And now, you’ve instantly come out of the paycheck to paycheck cycle.
Since you have this financial cushion you can start working on improving other areas of your financial life.
Use the Money for Long Term Benefit
The way you spend your income tax refund is ultimately up to you. You are in control of that money. You have to make the decision – will you blow it on stuff that’s not going to matter in a few months or will you use it to enrich your life and start the path toward financial stability?
I sincerely hope you choose the latter.