How are you spending your tax refund money? Assuming you successfully claimed all possible credits when filing your taxes, what are some next steps to maximize the benefits of your tax return?
If you recently became a single mom, or overall struggling to get ahead financially, how you spend your tax refund money can have a big influence on your life. While you might have a good idea of what takes to take care of your children and yourself, it will still help to take some time and write down your key financial goal(s). Is it to save enough money to rent or buy a good place to call home? Perhaps it is to pay off some debt that is weighing over you and interferes with your sense of balance and peace in life? Or maybe it is to have enough money to weather the storm of unemployment, medical bills, or family legal fees?
All single mothers go through financial stages in life. We all start on a rather shaky ground, where we are less than confident in our ability to be the only caregiver and bread winner for our little ones. In vast majority of cases we did not anticipate that one day we would need to raise children alone. Combined with the fact that like most people we also didn’t get a meaningful financial education growing up, we find ourselves overwhelmed and lost.
Build an emergency fund
Wonder how much should your emergency fund be and what kind of emergencies is it meant for? It’s typically suggested to save three to six months’ worth of your typical expenses. Essential things like housing, food, medical, and utilities would all fall into this savings category.
If you don’t feel like doing some mental math, this easy Emergency Calculator can help. Just enter your must have expenses and see what a good safety net would mean for you.
Up-level your knowledge
This one is really important no matter the industry you are working in. The good news is that you do not need to undergo maj0r training to advance to a better position or apply for a role in a better company.
There are many free or very affordable online courses (Udemy, Coursera, and many others) you can take that will help you up-level your skills. You can also learn for free by borrowing books and resources at your local library. Once you learn the needed skills, update your resume and start applying for better paying jobs. Alternatively, you can highlight to your employer that your new skills make you suitable for a better role within the company.
Pay off some debt
Paying of soul-crushing debt is a no brainer and needs to happen! The issue with debt is that it can weigh us down on many levels and be a stumbling block to our progress. Debt is inevitable in some circumstances, and it is almost certain that your debt did not appear because you bought too many Louise Vuitton bags or went on too many vacations. Imagine what a world that would be!
The typical debt of single mothers, unfortunately, comes from the need to cover bare essentials for their children and themselves during the times of crisis, sickness, or unemployment. Every person goes through different stages in life where things happen despite their best effort. For single mothers, however, the debt accumulates even faster and dissolved much slower. There is no financial back up for single mothers, especially because their exes often do everything in their power to avoid paying child support.
Don’t blame yourself for the debt. Simply acknowledge that you need to prioritize paying it off, and put the tax refund money towards paying it off as much as you can so you can sleep better 🙂
Buy a little bit of happiness
This one might be tricky, as you probably would not have too much money left if you spend the tax refund money on paying off debt and building your emergency fund. Those need to come first because it affects your life the most. However, you can get creative with they way you can use a little bit of money to get something that would make you and your kids happier.
Buying a little bit of happiness could mean a staycation with your kids and ordering out a fun meal to share to experience a new culture. Or it could be buying a small fish as a family pet (make sure to handle with care and full responsibility, as pets are not mere gifts!)
For me, something that would make my life easier as a single mother is important. For that reason I benefit from having useful small appliances and home-related items. If your dishwasher or laundry machine is broken, it would make your life easier (and hence affect your happiness) if you repair or replace them. Or you could get a coffee machine for yourself (shopping second hand will really open up your possibilities here) and a small gift of choice for your child.
Start a home-based business
If you have been thinking about starting your own business but needed some supplies or business registration to make it happen, allocating some tax refund money to this category could also produce great results. If you want to earn something, you need to spend something. It is a classical rule of engaging in business activities.
Having your home-based business can provide you with flexibility and security you need. When you have a great idea and you see there might be a good demand for it, it is worth your time and some money to build on it. You could open a home-based childcare (buy some good toys, new essentials, kids furniture, etc), or it could be a cake-baking business (ingredients, tools). There are many possibilities but the most important part is to be true to your business intuition and be comfortable to allocate some money to equip your idea to succeed.
If you want to share your ideas on best ways to spend tax refund money, please share below in comments. There are always some ways that are not as obvious, so we can all learn from each other!