Tax Refunds: Should I Spend Or Should I Save
BOSTON (CBS) - 70% of taxpayers received tax refunds last year with an average payment of $2,860. That amounted to almost $125 billion dollars returned to taxpayers.
And the IRS is expecting similar numbers for this year.
If you have already filed your tax return you are probably wondering when you will get your refund. The IRS is saying it will be 8 to 21 days after they have received your return. You can check with the IRS at Where's my Refund.
A refund is not a windfall! Many taxpayers treat it as such. It is a return of your money. You allowed your employer to withhold too much money last year and you are just now getting it back.
So what to do with that refund? Don't even think about rewarding yourself with those dollars if you don't have an emergency fund or if you have credit card debt!
A Bank Rate survey found that only 37% of folks could handle a financial emergency with current savings.
And almost 50% of households had experienced at least one financial crisis in the last year. Consider using that refund to save more in a Rainy Day fund.
Your Rainy Day fund should have in it at least 3 months of living expenses. This money is for an emergency such as a job loss or unexpected medical bills or your car breaks down.
Three months of living expenses is not the same as three months of income. You need only cover the basics in your budget. What will it take to maintain your lifestyle, rent/mortgage payment, groceries, monthly utilities, childcare, insurance payments, taxes etc.? That's the amount you'll need.
If you are single or the sole breadwinner in a family, an emergency fund is extremely important because you don't have the luxury of a second income to cushion some of the emergency. My recommendations are as follows:
- Bare minimum for anyone: 3 months
- Children & 2 steady incomes: 3-6 months
- Children & 1 steady income: 4-6 months
- Children & no steady income: 6-9 month
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You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
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