Its tax season, and that means more and more people are starting to receive a tax refund. But unless your tax return is large enough to pay off all of your debt, don’t waste a single penny of your tax money trying to pay back your creditors. Even if you’re facing bankruptcy, it’s better to set aside your tax money rather than waste it all trying to pay off a small portion of your debt. Here are a few smart things you can do with your tax return:
- Build Your Emergency Savings – If you don’t have at least a month’s worth of expenses in your emergency fund, you should put most of your tax return into savings. This emergency savings fund will allow you to cover any expenses that arise in case of an emergency, such as being laid off from work or facing unexpected medical bills.
- Save For Retirement – If you have several months’ worth of living expenses saved up and you want to strengthen your financial position even further, consider putting your tax refund into a Roth IRA. This individual retirement plan bears many similarities to a Traditional IRA, but distributions are tax free.
- Start a College Savings Fund – The earlier you start saving for your children’s tuition bills, the less you will need to save. Why? Because compound interest will do much of the work for you. You may want to look into a Coverdell Education Savings Account, a tax-deferred savings account that will help accelerate your savings and reach your goal in less time.
If you’re worried about bankruptcy, you may think you need to spend all of your hard-earned tax money paying off your debts. However, one phone call to Illinois bankruptcy lawyers Cutler & Associates, Ltd. is all it takes to get the IRS off your back.
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