The beginning of the year is a very hopeful time and frustrating time of year.

It is hopeful as the new year is underway, we can move towards goals that we have set and set old habits aside.

It can very frustrating though as we begin to enter into tax season.

If you are self-employed, it’s time to start collecting 1099’s and receipts.  If you are W-2, watch your mail and make sure you do not miss those W-2’s coming in.

If you have paid your taxes as you go, you may be receiving a tax refund back.  If that is the case, here are some ideas to use your once a year windfall towards.

 

Pay Down Debts

While the temptation when receiving a windfall is to use it for a new purchase, this might continue to make your financial situation worse.  If you have any consumer debt, meaning credit card or medical debt, a tax return can help you start to dig out of the hole.  While investment returns are not guaranteed, interest saved on lingering debt is always a guaranteed return.

 

For example, if you have a $10,000 credit card debt with 18% APR, but you pay it off before all interest accrues, you are saving that $180 you would have owed anyways.

 

Start An Emergency Fund

One of the best ways to stay out of debt is not necessarily to cut up your credit cards as Dave Ramsey would recommend.  Rather, taking the time to build a healthy savings emergency fund creates a cushion between events in life and going back into credit card debt.

 

A good rule of thumb is to have up to 3 months savings in a liquid savings account.  That way you can handle an emergency that pops up without going back into the hole of debt.

 

A tax return can be a great way to begin this process.

 

Start Investing For Your Future

Assuming that you have paid off consumer debt, as well as funded an emergency fund, a tax return can also be a great opportunity to start investing for your future.  Now that you have filled up the holes of debt and built a buffer, you can now take some of that money and start building mountains for your future.

 

This could either be funding a Roth IRA, or a brokerage account, it depends upon your situation.

 

If you would like some guidance, please reach out via e-mail or phone call.