What is the best way to spend your tax refund to provide the biggest benefit? Create a plan and spend it wisely. Consider your refund one of your paychecks, not a special “gift” from the government . What should you do with your refund once it’s in your hands? Here are 3 suggestions that will help you get ahead with your finances:
Increase (or Jump Start) Your Emergency Fund
Deposit it into your emergency fund. If you don’t have have an emergency fund, now’s the perfect time to get started. As a general rule strive to save at least six months of living expenses in an interest-bearing savings or money market account. This will help protect you and your family in the event of a disability, job change or other unforeseen event.
Pay Down Debt
Take this opportunity to pay down or pay off credit card balances, car loans or student loans. Start by paying down loans with the highest interest rate first. Clearing debt at the beginning of the year is a great accomplishment and sets you up to apply those ear-marked debt payments to savings for the rest of the year.
Save for Retirement
If your emergency savings account is already funded and your debt is paid off, consider making a contribution to a traditional IRA or Roth IRA account. It’s never too soon to start saving for retirement. Consult with your tax preparer or financial advisor to determine which IRA account is right for you based on your age, income level and goals.
Remember that a tax refund is a result of your employer withholding too much taxes during the year. This is actually your money the government is using instead of you. If you receive a large refund consider adjusting your federal (and possibly state) withholding amounts with your employer to decrease your withholding and increase your net paychecks. Do you need help determining the best way to spend your tax refund? Contact us today to discuss your specific situation and plan for what matters.
