Smart Strategies for Your Tax Refund
Did you know that April is financial literacy month, as part of this mission – we wanted to discuss what you could do with your Tax Refund. Everyone loves a refund, right? But the big question is what should you do with this excess cash? Here are some practical ideas for how to best use your tax refund.
1. Build up your emergency fund.
Having a strong emergency fund is a key foundational piece to a strong financial plan. This allows you to cover unexpected expenses that may pop up without needing to take a loan, especially in this interest-rate environment! This is usually the first step to building a solid foundation for yourself. Typically, getting to $1,000 is a great start for an emergency fund. Once you smash that goal, try to target an emergency fund that’s worth three months of your expenses.
2. Contribute to a Retirement Account
Making contributions to a retirement account, such as a Roth IRA, is a great way to save for the future. Depositing an influx of cash can boost your retirement savings, especially if these accounts are funded year after year. Remember, compound growth is your best friend, the earlier you can invest – the better!
3. Pay down debt.
Have some credit card debt? Using your tax refund to pay it down quicker is a smart idea. Paying down debt is never a bad thing because it will save you money on interest over the years, and you will free up monthly cash flow in the process.
4. Gifting and/or funding educational accounts
Whether it’s family, friends, or charitable interests, your tax refund can be a great way to enrich the lives of others. This can involve general gifting or gifting with a specific purpose, such as funding the education of a younger family member. If utilized properly, an investment vehicle like a 529 plan can be a powerful tool due to the tax benefits involved.
5. Fund Health Savings Accounts
If you have a high-deductible health insurance plan, you are likely eligible to contribute to an HSA. This can be a great strategy to pay for current or future medical expenses, while receiving a tax deduction as well!
6. Don’t forget the fun stuff!
Yes, I know what you’re thinking. We’re financial planners. Why are we telling you to spend your money, right? At the end of the day, we’re regular people just like you and we enjoy having fun too! Remember, money is just a tool to help us live the life that we want to live. Be sure to remember to spend your hard-earned money on something fun, whether it’s vacations, shopping, or simply going out to eat. You’ve earned it!
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