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Editor's note: A version of this article originally ran on the blog Debt-Free Mormon. It has been reprinted here with permission.
It's coming up on tax deadline time. So if you haven't done your taxes yet, get on it. Not filing is not something to mess around with.
If you have filed your taxes and are getting a refund, what are you going to do with it? What should you do with it? I'm definitely not a tax guy, so if you have questions about taxes, talk to your tax expert.
But I will say this about refunds ... I typically don't like them.
If you're getting a refund, you're most likely withholding too much from each paycheck. You should adjust your W-4 so at the end of the year you don't owe any taxes, but don't get a refund either.
A refund isn't a gift from the government. You overpaid and the government is sending it back to you. I don't like refunds for these reasons:
1) Many of you could use that extra money each month to help pay bills, pay down debt or just apply to whatever you are working on: an extra $200 a month could make a real difference in many cases.
2) The government holds the money you overpay interest-free; you could find a better use for that extra money.
Yes, I know what everyone says: "I like getting a big refund, because otherwise I'd just blow the extra money I get each paycheck," or something like that.
Guess what? If that's your attitude, you're likely going to blow your refund, too. You have to be smart with every dollar you make. You work too hard not to be.
If you have a budget and are on a plan, then any extra money you get should be used efficiently, whether it's with each paycheck or a refund at the beginning of the year. Talk to a financial adviser for help if necessary.
But for now, if you do have a refund, how you use it should use it will probably vary depending on where you are in your personal financial life. Here are four ideas:
1. Pay down debt.
According to bankrate.com, paying down debt is the most common thing people intend to do with their tax refund. This is great news. If you do this, congratulations!
But even then, be intentional. Make a plan for which debts you will pay off or pay down, how much you will pay, etc. Do it on purpose.
I subscribe to the snowball theory of paying down debt. If you are following the plan I talk about and follow myself — one suggested in The Church of Jesus Christ of Latter-day Saints' guide One for the Money and made famous by Dave Ramsey — it's best pay off the debt with the lowest balance first.
Don't just dump a little money here, a little money there — that isn't efficient. Follow a specific debt pay-down plan and be intentional. Apply the extra money from your refund to your current monthly income and budget and follow your plan. Don't do anything too drastic or too different.
2. Create an emergency fund.
If you don't have an emergency fund in place, that might be a great place to start. The emergency fund is a critical part of your financial plan.
If you have debt, it can be difficult to find the extra cash to set aside for emergencies, so your tax refund is perfect for doing this.
So how much should you put in that fund?