4 Ways To Use Your Tax Refund
Tax season is officially coming down to an end (for most of us), and many of us are looking forward to our tax refunds hitting our bank accounts. While some may choose to spend their refund on a special treat, others may want to save it. If you’re trying to decide where to spend (or save) your refund, here are some ideas for how to make the most of your tax refund.
Pay Down Your Debt
Using your tax refund to pay off a portion of your debt can give you a good head start when it comes to managing your finances. Debt can put a damper on your finances in many ways, as well as put a lot of stress on you.
When you have high-interest debt such as a credit card or an auto loan, can make it hard for you to get ahead with your finances. In general, it is a good practice to keep your debt lower than 30% of your total available credit. If you are carrying balances higher than this, you should consider paying them down or even refinancing to make them easier to manage.
Create an Emergency Fund
The second option that you have available is to make sure you have an adequate emergency fund. It can be a good plan to have easily accessible money set aside for unexpected expenses like medical emergencies, home repairs or a sudden job loss. If you have an emergency fund already, how do you know if it is enough? Most people strive to have somewhere between 3-6 months worth of expenses in their emergency fund; however, this can be more/less depending on your situation.
For those who don’t have an emergency fund, this is a great time to start. Set a goal for how much you want to save and start with your tax refund. Even if you begin with a small amount in your savings, you can always continue to contribute to your emergency fund until you are comfortable with the amount you may need.
Invest For Your Future
If you have never invested before, using your tax refund can provide a way to get started without taking any additional funds out of your regular monthly budget. This will allow you to enjoy the benefits of compounding interest and investing, while not forcing you to restrict your lifestyle.
If you have existing investment accounts you may want to give them a boost by adding your refund to your accounts. Making an extra lump sum contribution to your IRA, Roth IRA or Brokerage account will give you some flexibility if you cannot contribute for a couple of months because of an unexpected expense that came up or it can just help you save more for your future.
Whether you are just starting out with investments or have been investing for a while, it never hurts to contribute more to your accounts.
Invest in Yourself
The final option you may choose is to spend your tax refund. It may be a great time to consider purchasing something you normally would not spend money on. It is always important to remember that it is okay to invest in Yourself and Your needs. Whether it is a wardrobe update, house renovation or a vacation; we all deserve a little something for ourselves.
Depending on the amount of your refund, it also may be possible for you to use your refund for a combination of the options.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes*