Use The Tax Refund To Reward Yourself


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With the deadline on filing taxes ending recently, this is an ideal time to spend our tax refund the right way.  With all of the hard work that we put in each day, it is time to reward ourselves.   Rather than thinking about purchasing the latest iPhone, big-screen HDTV, and a luxurious vacation, reward yourself with less stress by boosting savings and reducing debt.

It is essential to build up an adequate level of savings.  Unless you have two months or more of your income in emergency savings, it would be helpful to devote half of your refund in replenishing your safety net.  One can never foresee a car breaking down, costly medical surgery that is essential, or losing a job.  However, you can prepare for those instances by having an ample amount of saving to alleviate a crisis.  Otherwise, you will be tempted to make ends meet by using your credit card, which should be avoided at all costs.

In our pursuit of wealth and prosperity. we first need to rid ourselves of the curse of debt.  Try to commit at least half of your refund toward eliminating debt.  Credit card debt leads us down a path of despair and misery.  You have already committed to an austerity budget where you will mostly spend on necessities, rather than spend frivolously on items that are not needed.

When eliminating debt, focus on the interest rate, rather than the balance.  If you have multiple forms of debt, resist the urge to pay down small balances that have low interest rates when you have large balances with much higher interest rates.  Recognize that high interest rates will do more damage to your wealth than low interest rates.

Debt reduction means setting mini-goals.  If you have $10,000 in debt and earn a low or moderate income, then it is not possible to pay it off within a year.  Assume that you earn $40,000 a year.  If that is the case, commit to paying off 10% of that debt each year.  Depending on the interest rate, it might take up to three years or more to eliminate it.  That is a long time and can lead to discouragement.  Therefore, set moderate goals that can be met throughout the year.  One example is rewarding yourself with a small impulse buy when your debt balance is reduced by $1,000.

Discipline yourself through a mindset of delayed gratification.  We only live once, so it is fine to splurge on the finer things of life.  However, let’s pursue moderation by identifying one item, rather than multiple items.  In addition to paying down your debt, set aside extra funds over time toward buying that special outfit or home furnishing or modest vacation over time.  By resisting the impulse buy, you have time to pay it with cash rather than debt.  Also, by waiting, you might be able to take advantage of special deals and discounts.

Stop punishing yourself through satisfying temporary pleasures and seek more permanent rewards through more disciplined money management practices.

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