8 Dos and Don'ts for Your Tax Refund
As tax season comes to a close, you’re hopefully looking forward to your incoming tax refund. Anyone would be happy to have some extra cash; however, be smart about what you choose to do with it. Here, we share 8 Do’s and Don’ts for getting the most bang out of your tax refund bucks.
DO Create an Emergency Fund
Most Americans don’t have proper financial backup in place in case of extreme financial need. Your tax refund can be a good way to start or replenish your emergency fund. You should have enough money in this fund to last you for 6-months. Once you’ve reached your goal, you’ll be able to breathe easier knowing you have a backup plan.
DO Pay Off Debt
There’s no bigger burden than carrying around high-interest debt. It wouldn’t make much sense to put money into an account compounding 1% interest each month while your debt increases at 18% interest. Once your debts are paid off, you’ll be able to put more money into your bank account each month.
DO Invest in the Stock Market
The stock market, although risky in the short-term, offers great long-term returns. Investing your refund is a great way to begin growing your investment portfolio. Use your tax return to seed your financial future.
DO Boost Your Retirement Savings\
The earlier you save and the more you save, the more time you have to build your savings and benefit from compound interest. You may also be able to deduct contributions to your retirement account from next year’s tax return.
DON’T Spend it on Material Things
While it can be tempting to splurge on a new TV, couch, or gadget, you’ll only be throwing money away that could be used for your financial gain.
DON’T Go to The Casino
While gambling offers you the opportunity to turn a little money into a lot of opportunity, it can also leave your pockets empty. Don’t throw away your tax refund in a matter of hours.
DON’T Use It as A Down Payment On Something You Can’t Afford
Now that you have a little more money in your bank account, that car just outside your price range may seem a bit more tempting to purchase. Only purchase a car that makes sense for you financially; something you could pay off in 3 years.
DON’T Put it in Your Checking Account
By putting your refund into your checking account, you’re only tempting yourself to spend more money - because it looks like you can afford to. Instead of using it for purchases, place it into a savings or retirement account where it can compound interest.
The Bottom Line:
While your tax refund can be a tempting sum of money, it’s best to think about your long-term financial future when figuring out how to use it.