This is another guest post from Joe Plemon from Plemon Financial Coaching. Joe is the Money Columnist for The Southern Illinoisan.

Q: Joe, we have just filed our taxes and are going to receive a $4,800 refund.   Should we use this money to pay off credit card debt or invest it for retirement?

A: The “Baby Steps” approach, touted by Dave Ramsey, will not only answer your question, but will give you a methodical money plan for the rest of your life.  Let’s walk through these steps in order.

Dave Ramsey’s Baby Steps

• Baby Step One: $1,000 in an emergency fund.  If you don’t already have $1,000 set aside for small emergencies, you should do so with the first $1,000 of your refund.
• Baby Step Two: Debt snowball.  Use the remaining balance to pay off debt, other than your house, progressing from the smallest to the largest.
• Baby Step Three: 3-6 months of expenses in fully funded emergency fund.  If you have any money left after the first two steps, use it to build up your emergency fund.  A fully funded emergency fund is especially significant in today’s uncertain economy.
• Baby Step Four:  Invest 15% toward retirement.  I imagine that you used all of your refund in the first two or three steps, so this one will need to wait until you are out of debt and have a great emergency fund.

Three remaining Baby Steps are:

• Five: College Funding.
• Six: Pay off House Early
• Seven: Build Wealth and Be Very Generous.

You didn’t ask, but I must challenge you about the wisdom of receiving such a large refund.   Remember: this is YOUR money.  When you get a refund,  the IRS is returning the money you have loaned them interest free over the past year.  $4,800 is $400 a month you could have been using to pay off debt this past year.  I urge you to change your W-4 form so you can have this money in your hands instead of the government’s hands.  One caveat:  give the money a name so it won’t disappear.

Securities offered through LPL Financial, Member FINRA/SIPC