If you are one of the lucky tax payers expecting a tax refund this year, it is easy to get caught up in thoughts of how to spend what can seem like a windfall. You may daydream about upgrading your big screen TV or treating yourself to a luxury vacation as a reward for working hard the previous year. Or, you could avoid burning a hole in your pocket by using the funds to reward your future self.
Here is how to get the most out of your tax refund:
Fund your Nest Egg
- If you have ever heard the term “Pay yourself first” you understand the importance of investing in your future. Planning for retirement may seem a long time away, but saving early can help you achieve the life after your career that you desire. Place your tax refund in a savings vehicle that will help maximize your earnings. A financial professional can help you analyze your current financial state and select the right investment options to help you achieve your goals.
Prepare for Emergencies
- Experts agree that a good rule of thumb is to have six months of expenses saved in the event of an unexpected emergency. A sudden accident, illness or loss of employment can lead to financial devastation if not properly planned for. While it can seem like an uphill battle to save so much, using your tax refund to jump start your emergency fund can get you there much quicker and provide peace of mind.
Remove the Debt Albatross
- Heavy debt can be toxic to your financial health. Using your tax refund to pay off a chunk can help remove undue stress from your life and allow for bigger contributions to savings. Start with paying off your high-interest debt, like credit cards, first. Many credit card companies charge between 20%-30% interest which can take a long time, and a lot of money to pay off.
Buy Something You Need
- If there is an expense you have been putting off because of lack of available funds, this may be a good opportunity to take care of it. Whether it be car repairs or needed updates on your home, using your tax refund for something you need versus something you want is a smart investment.
Whether your tax refund is $500 or $3,000, there are smart ways to maximize these funds. Before spending, give some thought to how you can improve your financial situation overall and help your future self. Also remember that your tax refund is not a “bonus” check. Chances are if you are getting money back, you are having too much withheld. Consider making some adjustments to your withholdings so that you have more money in your weekly paycheck going forward. Check out our FSBlog or follow us on Facebook or Twitter for more financial tips from your friends at Franklin Savings Bank.