Time To Use Your Tax Refund
May 4, 2022
What to Do with Your Tax Refund?
Here we are already through the first quarter of 2022, and every year April 15th seems to creep up on us. Now that the tax deadline has passed and you have either finalized your return or filed an extension, now is the time to begin thinking about how to use your refund.
Here are a few options to consider:
Pay Yourself First
To some, a tax refund is like finding that $20 bill in an old pair of jeans- you never expected to have this money, but now you’re excited! Instead of buying something new, this is a good opportunity to use your refund to put a little extra towards your emergency fund. You should work toward accumulating enough to cover 3-6 months of your living expenses. For more information on establishing your emergency fund check out our blog and conversation on this topic.
You might also consider using a portion of your refund to reduce your debt. Do you have credit card debt or student debt that you’ve been working to pay down? This is a great opportunity to make an extra payment and benefit from less interest accumulating. We recommend you pay down your debt with the highest interest rate first.
Now what if you have a little extra left over? Think about contributing to your traditional or Roth IRA. Getting that annual contribution started now is a great way to build for the future. We suggest you discuss all IRA contributions with your financial advisor or tax professional to determine which option is right for you.
Time for a Makeover
Like most of us, you have probably been spending more time at home. Maybe HGTV’s Dream Home Makeover has you imagining bigger plans for your home, even if your budget is telling you differently. Use your tax refund to open an account earmarked only for your dream home projects. This could be the “down-payment” you need to get started. If the funds are in a separate account, you’re less likely to use the funds for something else, and you can earmark regular deposits into this account. Once you’ve built up the account, you’ll be ready to get started on that project.
If at this point you’ve paid down debt, funded your emergency fund, and contributed to your retirement account, it’s time to set up a dedicated investment account. Extra savings invested for the long-term can potentially double or even triple in 10, 15 or 20 years. Your future self-will be sure thank you for setting aside the savings today.
Whichever way you choose to use your extra funds from Uncle Sam, be sure to set aside a small amount to also enjoy yourself. The most successful savings plans build for the future without leaving us feeling deprived.
Need help getting started with any of these ideas? We’re here to help!
Vice President, Senior Wealth Advisor