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What would you do if you received an extra paycheck this month? For those who are lucky enough to receive one, a tax refund can be exactly that.
From deciding to save or pay down debt, where do you start?
#1 Priority: Build your emergency fund.
Putting money aside for a “rainy day” helps manage the unimaginable. Building up an emergency fund account allows for a little cushion when things such as expensive car repairs or a job layoff takes you by surprise. Financial gurus like Dave Ramsey recommend having at least $1,000 in your emergency fund to get started. Ideally, you should try to set aside between 3 to 6 months’ worth of your essential monthly expenses like mortgage/rent, utilities, groceries, etc…
Do This Today: Explore opening up a high-yield checking account that earns some decent interest while keeping your money “liquid” (translated: easily accessible when you need it).
#2 Priority: Reduce or pay off the high-interest balance first.
Are you worried about how much you owe on your credit cards? Before you make a large payment on a credit card balance (or any loan balance), look to see which has the highest interest rate. That high interest rate is probably making your life miserable as it hits you month after month on unpaid balances. Lowering the balance or paying it off altogether, will definitely save you in the long run.
Do This Today: After you rank your interest rates, apply your tax return to the balance tied to the highest rate. If there is still a balance, you may want to consider refinancing at a lower rate.
#3 Priority: Invest in your future.
So you’re feeling good about your emergency fund and your loan balances? Then consider depositing your tax return directly into a retirement account. Even a modest tax return of a few hundred dollars could grow exponentially in twenty or thirty years thanks to compounding interest. You just might feel better investing in a significant long-term benefit than making a short-term purchase with your tax return.
Do This Today: Deposit your tax return into your retirement account – and do it quickly, before you have second thoughts and blow it on an impulse buy! If you’re 18+ and don’t have a retirement account yet… STOP. AND. CREATE. ONE. NOW. (Seriously. Do it.) Our good friends at Ohio Financial Life can help!
#4 Priority: Invest in the next six months.
Emergency fund? Check!
Credit card balance? Looks good!
Retirement fund? Got it covered!
First, stop reading and pat yourself on the back! Now, close your eyes and think about the most important what you want to purchase six months from now.
Whatever that what is, it feels great knowing you’ve put money aside for that very important what you just thought about.
So drop that tax return into an account that rewards you for choosing to save over the short-term. Then pat yourself on the back again…
Do This Today: Check out Share Certificates. They’re a safe short-term investment with a moderate interest rate and guaranteed return.
Thank you for reading this far! It shows you’re serious about making solid financial decisions.
Browse our blog to improve your financial skills by learning about achieving financial goals in 2020 or saving for retirement.
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