I Got A Refund! Instead of thinking this money - whether it's $300 or $3,000 - is a gift from the government to send you to the Bahamas or to get a brand-new spring wardrobe, think about it differently this year. Even though nice trips and new clothes are great, only consider stuff like that AFTER you've taken care of these necessities first:
• Build up your emergency fund. If you don't already have $1,000 in the bank, stash that away as fast as possible. It's important! Life is going to happen, and you need to be ready for your own sake. Don't let Murphy catch you off guard and put you further in debt. If you are already debt free (except for the house), throw this extra money toward building up your full emergency fund of 3-6 months of expenses.
• Attack your debt snowball. If you already have your $1,000 emergency fund, attack your debt snowball with gazelle intensity. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs. In that case, list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.
• Invest it! Only after you are out of debt and have your full emergency fund saved should you consider investing your refund. Remember that if you are under 50 years of age, you can contribute up to $4,000 per year into a Roth IRA ($5,000 for over age 50). This is money that grows tax-free! If you're already contributing 15% or more into your own accounts, use this money toward your child's college funding.
• Pay off your home. Did you know that you aren't destined to have a house payment for the rest of your life? Yeah, it may sound crazy, but I'm telling you the truth! Once you've completed Baby Steps 1-6, it's time to own your home 100%. Maybe your refund is a whole house payment or two...or three. If you put your refund toward this, you are that much closer to owning your home - possibly months earlier than you originally expected. Now wouldn't that feel awesome?! Just think what life would be like with NO PAYMENTS!
It's time to think differently this year about this extra money! Remember...Debt is normal. BE WEIRD!
Dave Ramsey is a personal money management expert, an extremely popular national radio personality and best-selling author of The Total Money Makeover. Dave is changing the face of America by helping people get out of debt and build wealth. Ramsey exemplifies his life's work of teaching others how to be financially responsible, so they can acquire enough wealth to take care of loved ones, live prosperously into old age, and give generously to others.