It’s finally here—the part of tax season we love to love: getting a tax refund! Wondering what to do with your tax refund this year? Consider creating an account buffer. It’ll save you from being financially blindsided by overdraft fees, declined cards, and bounced payments (oh my!).
Is an account buffer the same thing as emergency savings?
An account buffer is much smaller than an emergency savings fund, and serves a different purpose. Emergency savings are typically thought of as having anywhere from three to nine months of living expenses on hand in the event of a major catastrophe. If you change jobs, get hit with expensive medical bills, or a natural disaster comes your way, you can find immediate relief in your emergency fund. Think of an account buffer as a baby step toward emergency savings.
An account buffer ranges from one to two weeks of your income kept in your checking account, which serves to protect you from overdraft fees, declined cards, and bounced payments. An account buffer is especially useful if you have automatic payments set up and don’t spend your time tracking every nickel and dime in your bank account.
If you use your tax refund to create an account buffer, you’ll not only be saving yourself financial heartache, but you also won’t have to save up over time in order to create it—you’ll have it now.
But I’d rather spend my tax refund on something else…
The temptation is real! But before you go blowing your tax refund on—let’s face it, the best things in life—take a minute to remember the last time your account was cleared out, and you had to pay for something. If you’re a Simple customer, you probably got declined; if you’re not, perhaps you got blindsided with an overdraft fee, leaving you feeling angry and frustrated. All that money and mix of negative emotions adds up: America’s three largest banks collected over $1.1 billion in overdraft fees in the first quarter of 2015 (that’s billion, not million). There’s even been a case where a woman overdrafted her account, unknowingly signed up for a high-interest line of credit to cover the overdraft, resulting in her unknowingly incurring thousands of dollars of debt. Even if you have a Simple account and know that you won’t ever have to pay an overdraft fee, bounced payments and declined cards are still no fun.
While it’s tempting to spend your entire tax refund on something excessively luxurious, you’ll be glad later if save some for your account buffer now. Not only is it a smart move, but it’s an easy way to start your savings if you have little to none. Having just $500 in savings puts you with the 37% of Americans who have at least that much in savings. In this day and age with with spiraling student loans, medical bills, and stagnant income, having any savings at all is a luxury in itself. So skip the $1k+ diamond cream and splurge on yourself with an account buffer this tax season.
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