What to Do with Your Tax Refund?
Tax season can feel like a hassle, but there is one positive aspect… your refund. Whether it’s a few hundred or a few thousand dollars, a tax refund is a great opportunity to give your finances a boost. Instead of spending it all in one go, consider using it in a way your future self will Thank You for. Here are three smart, future-focused ways to use your refund:
1. Save it for a Rainy Day
Life is unpredictable, and that is exactly why we advise all our clients to have a healthy emergency fund. We recommend having anywhere between 3 to 6 months’ worth of expenses saved in an easy-to-access account.
If your emergency fund is not fully funded, using your refund to boost your emergency fund will help give you more peace of mind. Whether it’s a surprise car repair, medical bill, or a job change, having the cash on hand means you can handle unexpected expenses without going into debt.
2. Invest for the Long Run
While it’s easy to focus on today, your future self will thank you for investing even small amounts consistently.
Your tax refund could be used to; Contribute to your IRA accounts (Roth and Traditional), add to an existing savings plan currently in place, or even set up a 529 plan for your children’s or grandchildren’s accounts.
Investing all or a portion of your tax refund can help boost your current savings plan and pad up any savings goals that you have not hit yet. Putting your refund to work in the markets is one of the better options when asking yourself what to do with this newfound money.
3. Pay Down High-Interest Debt
If you’re carrying credit card balances or other high-interest loans, your refund can help you break the cycle. Paying down debt reduces the total interest you’ll pay and frees up cash in your monthly budget. Start with debt that has the highest interest rate. This may not be the most exciting use of your refund, but it is one of the smartest decisions you can make.
In closing, your tax refund is a great opportunity to make meaningful progress toward reaching your financial goals. Whether you choose to save, invest, pay down debt (or a little of each) being intentional with your money today can lead to greater financial freedom tomorrow. Remember, even small steps can have a major impact over time.
