Tax refund burning a hole in your pocket? That isn’t a bad problem to have! But try to avoid the temptation to spring for a new flat screen TV or a mid-year vacation. While a tax refund can feel like “free money”, there are a lot of thoughtful ways to put the cash to work. In fact, according to Bankrate’s 2017 Money Pulse Survey, the “splurgers” are in the minority; only 6% of those surveyed intended to spend their refund frivolously.
With that in mind, here are a few refund deployment tips from our team
- Strengthen your Emergency Fund: Many experts suggest keeping anywhere between 3 and 9 months of expenses on hand in case of emergency/loss of income. Hide your refund away in a savings account for a rainy day.
- Pay Down Debt: If your emergency fund is in good shape, take a look at your liabilities. Making extra payments on a loan or credit card can shorten the term of the loan, save on interest expenses, and eventually reduce your monthly expenses. For more debt advice, check out this helpful post.
- Save for Retirement: Consider making an extra contribution to an IRA or employer sponsored retirement plan.* You’ll likely be able to deduct the amount on your 2017 tax return, defraying this year’s taxes while improving your net worth. The additional funds will contribute to long-term compound growth, potentially enjoying decades of tax-sheltered appreciation.
- Update your Estate Plan: A lot of my clients cite cost concerns when justifying procrastination on preparing a will. But everybody can benefit from some estate planning – no matter their age or level of wealth. Put this year’s refund towards the cost of a new (or updated) estate plan. You’ll enjoy the peace of mind.
*As always, be mindful of contribution limits and consult with your tax preparer before making additional retirement contributions.