Additional income is any income received outside of your regular stream of income. With tax season underway, some of you are receiving refunds in upcoming weeks!
One of the biggest questions I'm asked around this time is what to do with a tax refund. Do you use all of it to pay down debt? Do you put it all towards savings? Spend it all?!
There isn't a simple answer that can be applied as a blanket statement to everyone's life, but here are some things to keep in mind that will be able to guide your decision-making process.
Do you have debt?
If you have debt, a portion of any extra income should be used to pay it down. If you are using a debt snapshot, dedicate an amount to pay the debt you're focusing on right now.
Are you working on savings goals?
If you don't have emergency savings, this is a good time to consider building a fund for a rainy day.
While paying down your debt quickly has benefits, focusing only on your debt goals can have a down side. If you were to experience a financial hardship tomorrow, where would you get the extra funds needed to cover the costs if you don't have an emergency fund? Beginning to build your savings while things are okay, will help to get through future hardships.
Can you treat yourself?
Before you run out to spend your entire tax refund, I am not telling you to blow the entire refund on something that's not necessary, especially when you have responsibilities and are still working towards financial independence.
What I am saying is it's a good idea to squeeze in a treat for yourself if you can afford it. Working on new financial habits takes time, so when you have a moment to treat yourself without breaking your wallet and budget, then take the opportunity!
Being able to do something nice for yourself is a rewarding feeling. If you're taking care of your responsibilities, enjoying yourself should be encouraged. Even if you're not as financially independent as you'd like to be, it's okay to enjoy the money you work so hard for.
The key to financial independence is a balanced mindset to responsibilities and having fun ⚖
What are you planning for your tax refund?