How to Use Your Tax Refund

If you’re getting a tax refund this year you might be contemplating ways to spend that money.  Here are three suggestions we have to use your tax refund as a tool for investing in your future:

Pay off debt

Consider using your refund to reduce or eliminate debt then avoid future debt if possible.  If your refund isn’t enough to fully eliminate your balance, consider using it as a way to kick-start a debt-payoff plan.  Start by paying down high-interest debt – typically credit cards – first.

Contribute to an emergency fund

An emergency fund helps protect you when unexpected expenses occur, like large medical or automotive bills.  We recommend this fund have three-to-six months’ worth of living expenses.  Your tax refund may not fully fund the account, but you can still use it as a starting point.  Beginning with even just a few hundred dollars can give some peace of mind knowing you can cover financial hiccups.

Save for retirement

Putting your tax refund in a retirement savings account can reward you in the long run as your savings benefit from potential market growth.  While you can’t contribute your refund directly to your employer’s retirement plan, you can use the cash to pay for regular expenses and increase your contributions through work.  Or you may consider an IRA contribution.

The above are all ways you can use your tax refund to build financial stability, but you can set aside a little to reward yourself, too. Treat yourself to something you wouldn’t normally buy, or spend some of your tax refund on home improvements that will brighten your day.

Contact your RK advisor if we can offer guidance in any way.  The RK team is here to help.

Nathan Woods, CFP® AIF® is a Senior Advisor with Rather & Kittrell.

Source: Empower Retirement