Dreaming about the Tax Refund. . .

According to the Bankrate.com, this year 30 percent of Americans intend to pay down debt with their tax refund, 28 percent say they will save or invest it, and 26 percent plan to use the refund for necessities such as food or utility bills.

How should the tax refund be spent this year? The BEST idea is have a plan, then stick to it.

Virginia Saves recommends splitting the tax refund into three parts:  

ü  30% Emergency savings- Prepares for the next emergency.

ü  30% Pay down debt- Improves financial outlook.

ü  40% Discretionary spending- Allows spending on needs or wants.

An Emergency fund is the first step to financial security. Even a modest savings of $300 will prevent relying on using debt for an unexpected expense. Emergency savings breaks the cycle of crisis living and living payday to payday. Saving 30% of the tax refund in a savings account prepares for the next unexpected emergency.

Reducing Debt will reduce the minimum monthly payment due on credit cards and other debts. The reduced monthly payment leaves more money in the budget for other needs. Paying down debt with 30% of the tax refund improves the financial outlook for the year.

The remaining portion of the refund is allotted for discretionary spending. Purchase needs before wants and look for sales to stretch the dollars. Spending 40% of the tax refund on desired items is the reward for money smart choices.

Taxes can be prepared for free for families with incomes below $49,000. South Hampton Roads EITC Coalition is offering free income tax preparation. This includes roving site service and a site may be close to you. The South Hampton Roads Earned Income Tax Credit coalition has the free tax preparation sites listed at http://www.shreitc.com/en/free-income-tax-preparation-sites. AARP are also offering free tax preparation for low income families and seniors at many local libraries.  http://tidewatertaxaide.org

Many families qualify for the Earned Income Credit (EIC) and only have to file to receive a refund. Even if no taxes were paid, you may still be eligible to receive a tax refund with the EIC. Click here for more information.

Spend your tax refund wisely. You will be glad you did!