Congratulations, you got a tax refund! You worked really hard for your money, now here are some things you can do to get it to work hard for you, by building wealth.
Tax refunds are wonderful things. Sometimes you're expecting it, and sometimes you're not. Either way they make your day! The thing to remember is that a tax refund is income that you worked hard to earn and should be treated like your other income.
No, our advice is not "a cruise is great this time of year."
First Rule? If you are getting a tax refund this year, get it out of your checking account. Not only do checking accounts earn terrible returns but they are also the easiest place for money to be spent without even realizing it. But where should it go? Here are some suggestions.
#1 Pay Off Your High Interest Rate Debt
Do you have any debt that you are paying double-digit interest rates on, such as credit cards or student loans? These can be brutal for your overall financial health, so pay those off with your tax refund before you do anything else. Eliminating high interest debt should always be your first priority. And, keep an eye on your overall debt.
#2 Create an Emergency Fund
We always recommend that you have an emergency fund of between 2-6 months of living expenses in a savings account. This can give you peace of mind in case of something unexpected, such as a car or home repair or the sudden loss of a job. It's always good to have this emergency fund for unforeseen expenses, that way you will not have to go into debt to pay for them. One-off expenses typically happen with urgency, and without planning, but they don't have to burden you financially.
#3 Make Your Money Work for You
Sometimes retirement seems so far off, but the rule of compounding is forever true. The longer your money has time to work for you, the more it will grow. Make sure that you are saving for your retirement, no matter your age. Do you have a 401(k), Traditional IRA or Roth IRA? Are you funding them with the maximum amount allowed by law every year? Making retirement contributions can also be tax advantageous, and help you save on your tax bill for next year. We can help you determine which type of account is best for your individual situation.
#5 Treat Yourself
Have you already done all the things previously listed? Then spend some of your tax return to treat yourself. Self-care is very important and deserves some attention too! Some great self-care ideas are get a massage, schedule a health coaching appointment or a relax while getting a vitamin infusion.
Still Not Sure What To Do With Your Tax Refund?
Do you have questions about if you are making the right choice on how to spend your tax refund? Or do you need help getting all your finances pulled together so you know where to start? Contact us to set up a complimentary review. Our fiduciary financial advisors will make sure your have a holistic financial plan in place, and will help you to achieve your financial goals and dreams.
Curious about what a first appointment looks like with our financial advisors? Read our blog here, about what to expect at your first financial planning meeting.