Received a tax refund this year? While it may be tempting to spend impulsively, if you really want to treat yourself, financial professionals recommend using the payment for practical expenses.
According to certified financial planning professionals, here are smart ways to spend your tax refund that will improve your life:
1. Build an emergency fund: Unexpected circumstances, such as illness or job loss, can leave you with more bills and less income. Not having an emergency fund puts you at risk of having to take on high-interest debt to cover expenses. Use your tax refund to create some peace of mind for you and your family. And now that you’ve started the emergency fund, consider using direct deposit to funnel a portion of each paycheck into that account.
2. Reduce debt: Paying off debt can seem like an insurmountable challenge. And if it’s a challenge you’ve been avoiding, you can use your tax refund to kickstart your journey. Not sure where to start? A CFP professional can help you identify which debt to prioritize first, as well as assist you in creating a payment strategy for the future.
3. Save for retirement: No matter your age or stage in life, a tax refund offers a great opportunity to boost your retirement account. Thanks to compound interest, the money you set aside today in an investment account, like a 401(k) or Roth IRA, will grow exponentially between now and when it’s time to access your savings.
4. Set financial goals: From planning a trip or wedding to becoming a homeowner, your goals are worth the investment. Put your tax refund into something that matters to you.
The best thing you can do may be to avoid future refunds. While it’s great to receive a big check during tax season, a tax refund is effectively an interest-free loan you made to the government. You are much better off keeping more of your money throughout the year so you can invest it or use it for things you need. Consult a professional about how to adjust your withholdings to get closer to breaking even next year.
For more tax season tips and to find your CFP professional, visit LetsMakeAPlan.org.
With an actionable plan and the help of a qualified financial professional, you can ensure that your tax refund is well spent.
Source: StatePoint