This is the time of year when many people may get a tax refund. While there is Pros and cons of using your tax refund as an enforced savingMany people wonder what some are the best ways to use your tax refund. When you have a regular monthly budget, it can be difficult to find the best options for a relatively large check, especially if it's unexpected or above your typical income amounts.
In addition to the tax refund you might expect, many people have received or received it receive a stimulus check by the government. The same rules apply to a stimulus check as it is likely to be unexpected money to add to your regular budget. Here are 5 things you can do with one large, one-time payment
Create a budget
The first thing you should do is Make sure you have a budget. You don't necessarily want to include this one-time income in your budget (as it probably won't repeat itself), but it's a good idea to make sure you have a good idea of where your money is going. Remember that a budget is just a tool to keep you from spending money on things that are not important to you. That way, you'll have a lot of money to spend on the things that matter to you.
Starting or adding to an emergency fund
If you don't have an emergency fund That should probably be the first thing you do with your one-time payment. An emergency fund is an important part of a healthy financial life. One important thing to remember is to keep your emergency money separate from the rest of your money. Check out ours List of the best savings accounts to find a good account for you.
If you already have at least $ 1,000 in your emergency fund, you can top up your emergency fund. $ 1,000 is a good starting amount for an emergency fund, but it is won't be enough to cover more than an occasional expense. Ideally, you should aim to have three to six months of living expenses in an emergency fund. Your tax refund or stimulus check can be a great way to accomplish this.
repaying debts; to repay debts
Another great option for your one-time income is to pay off your debts. There are a variety of various debt settlement strategiesSo decide what makes sense to you. With the debt snowball, you order your debts by the smallest amount first. Then pay them off in turn, applying the monthly payment of each debt that has been repaid to the next lower debt in turn. The debt avalanche begins with paying off your debts at the highest interest rate. This will help minimize the total amount of interest you have paid. In practice, the difference between strategies isn't that important – the most important thing is choosing a strategy that you can stick with.
Start a sinking fund for a long term goal
Another great option is for a one-time payment Creation of a sinking fund. A sinking fund is a special type of savings account that is reserved for a specific purpose. An example could be saving for a down payment on a home. Let's say you find that you need $ 25,000 in your down payment and you can add $ 500 per month to your sinking fund.
To Start a sinking fundIt can be so easy to open a new savings account and fund it with some cash. In our example of a deposit, it takes 50 months with no additional deposits. However, once you've settled on your main goal, all of your extra money can be spent on achieving your goal. Background noise, Credit card rewards, One-time payments can be a great way to meet your financial goal with a sinking fund.
Invest in yourself
Finally, take some time to invest in yourself. That could be take additional training for your career, looking for new work, or open a business. It could even be a reward for hard work or accomplishment in other areas. The important part of investing in yourself is making a plan for it. Without a plan, you will likely find that this large one-time payment will be gone in a matter of weeks or months. Making a plan is a great way to get your money to work for you and position yourself for future financial success.
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Dan Miller (49 posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheaply. His home base is Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.