How To Use Your Tax Refund Wisely
March 5, 2016
For most taxpayers, the light at the end of the tax season tunnel is the hope
of a refund. Many of us view a tax refund as 'bonus' cash; however, there are
many useful strategies to put your refund dollars to work for you. So, if you're expecting
a tax refund this year, make sure you have a plan for your money.
Save for a rainy day—
or a stormy one
Although it may not seem like
a very exciting way to use your
refund, the peace of mind that
establishing or adding to your
emergency fund will give you is
priceless. Financial experts advise
that your fund should have about
six to eight months’ worth of
savings in an easily accessible
interest-bearing account. Your
refund is the perfect vehicle for
making a lump sum deposit into
this type of financial cushion.
Reduce high interest
Next to putting money away for a
monetary emergency, paying off
any high-interest debt you may
have is the next best thing you can
do to strengthen your financial position.
Make a budget
and fund it
If you don’t already have a budget,
receiving your refund may be the
incentive you need to create one.
Once you have your budget organized,
consider using your refund
to seed bank accounts for key
purchases such as holiday gifts, car
down payments, college savings
and the like.
Using your tax refund to start or
top-up a traditional or Roth IRA
(Individual Retirement Account)
or to contribute to a 401(k) or a 529
college savings plan offers you a
double bonus. Not only will you be
compounding dollars and interest
for your future retirement or college
tuition needs, but you may be
creating a deduction for next tax
season as well.
Invest in a
If you have already contributed
the maximum to your tax-sheltered
accounts, consider investing
in stocks, bonds, and mutual
funds either independently or
through a financial advisor who
can guide you.
You deserve a treat. Just make sure
your splurge is a) planned and b)
within your budget. So whether it
is a fancy dinner for two or a getaway
to a longed-for destination—
enjoy it thanks to your tax refund.
After all…you earned it!