Tax season is almost over! This means that your tax refund has more than likely already been deposited or is in the process of being sent to you, right? If you haven’t gotten around to taking care of your taxes, start right away! You might be wondering what you’ll be doing with your refund, and there are plenty of ways to spend it for sure. But, instead of going on a shopping spree or buying something extravagant, we suggest that you strongly consider saving or investing it.
Pay Off Debt
Debt can pile up quickly, and with all of those tax season “discount” sales popping up, you can cause more harm to your financials with your tax refund if you aren’t careful. Instead of going on a shopping spree, pay off as much existing debt as you can. Work on reducing or completely paying off your high interest credit cards first. By paying off your balances, you can be charged less interest, which will save you more in the long run. You can also avoid finance charges by applying your tax refund to current debt.
Start an Emergency Fund
Life has a tendency to spring unexpected financial burdens on us when we least expect them. That’s why it’s important to have an emergency savings fund to cover any unforeseeable event, like being laid off or falling ill and needing medical attention. And as we all know, medical bills aren’t cheap.
Relying on high interest credit cards can accumulate debt quickly and affect your financial standing. With an emergency fund solely dedicated to unexpected financial popups, your credit score won’t suffer and you won’t have to worry about paying off high interest rates.
A good rule of thumb is to have three to six months of finances put away in case of a serious emergency. Start with a large sum from your tax refund, then set up an automatic withdrawal from your paycheck into your savings account. With this and your tax refund combined, your savings account will start off with a secure foundation!
Plan for Retirement
If you’re two steps ahead with a healthy emergency fund and debt-free finances, then you deserve a pat on the back because, compared to most, you are ahead of the game. The next step is to plan for retirement. Every generation needs a strong and secure retirement plan.
Although often overlooked, investing for retirement should be a priority because it ensures that once you’re ready to leave the workplace, living comfortably will be possible and well worth the effort. Set up a Traditional or ROTH IRA. Even if you already have an employer-sponsored retirement account, you can take this opportunity to invest in an IRA to strengthen your financial standing.