Your Tax Refund: Saving More
BOSTON (CBS) - As of the beginning of March the IRS has processed about one-third of the tax returns they expect to receive this year, with almost 80% of those returns resulting in refunds. Taxpayers who are expecting a refund usually file early. You can easily log onto the IRS' website to check on your refund, Where's My Refund?
And about half of all filers will receive refunds and the average refund will be about $3,000.
A refund is not a windfall! Many taxpayers treat it as such. It is a return of your money. You allowed your employer to withhold too much money last year and you are just now getting it back.
So what to do with that refund? Don't even think about rewarding yourself with those dollars if you don't have an emergency fund or if you have credit card debt!
A recent Bank Rate survey found that only 37% of folks could handle a financial emergency with savings.
And almost 50% of households had experienced at least one financial crisis in the last year. Consider using that refund to save more in a Rainy Day fund.
Your Rainy Day fund should have in it at least 3 months of living expenses. This money is for an emergency such as loss of income or unexpected medical bills or your car breaks down.
Three months of living expenses is not the same as three months of income. You need only cover the basics in your budget. What will it take to maintain your lifestyle, rent/mortgage payment, groceries, monthly utilities, childcare, insurance payments, taxes etc.? That's the amount you'll need.
If you are single or the sole breadwinner in a family, an emergency fund is extremely important because you don't have the luxury of a second income to cushion some of the emergency. My recommendations are as follows:
- Bare minimum for anyone: 3 months
- Children & 2 steady incomes: 3-6 months
- Children & 1 steady income: 4-6 months
- Children & no steady income: 6-9 month
