According to the Internal Revenue Service (IRS), more than 70% of the nation’s taxpayers received a tax refund in 2017, and the average refund was nearly $3,000. The IRS reports that this year will have similar statistics. As many receive refunds, it may be tempting to splurge on a luxury purchase or a vacation. While it isn’t necessarily bad to treat yourself, we have a few suggestions to make your refund really count towards your financial wellness:
- Save for emergencies. You never know when a big car repair or medical bill might unexpectedly come along. It can be a huge relief to have a separate account of $1,500-$3,000 set aside and tapped into only for a true financial emergency.
- Pay off debt, your mortgage, or student loans. With emergency funds in your back pocket, it is also incredibly important to continue paying off debt and bills you might have. Chip away at loans with high interest rates or try to eliminate smaller debt first. Make an extra payment on your mortgage or student loans to save money on interest and reduce the term of your loan. Be sure to let your lender know that your extra payment is towards principal, not interest.
- Save for future expenses such as retirement, your child’s education, or health costs. When you put your tax refund towards opening or increasing your contribution to a tax-deferred savings plan (like a 401(k) or an IRA), you’re investing in your future. A tax-advantaged 529 education savings plan will help cover costs when you child reaches college. Tax-free dollars can be invested into a Health Savings Account (HSA) to help you save for future health and medical expenses
The idea is, when you deliberately use your tax refund with a strategy in mind, you are more likely to spend it wisely and efficiently. If you deposit the money directly into your checking account, you might end up wasting it on items you don’t truly need.
If you have questions or would like to learn more, please visit your local banking center for a complimentary financial consultation, or call us at 800-860-8821. We’re here to help you stay on the right path to financial health, no matter where you are on your journey. And as always, please consult your tax advisor.