Tax season is upon us. For many, that means a refund check is on the way. But don’t let the cash burn a hole in your pocket. Instead, use these tips to put your refund to good use while still enjoying a little splurge.
Give it purpose
If you’re anticipating a refund this year, put a plan in place before you start spending. Give your refund a purpose. Treat it like you would your regular weekly or monthly paycheck and use it to work toward specific financial goals.
3 financial priorities to consider:
- Beef up your emergency fund. Or, if you don’t already have an emergency fund, use part of your refund to start one. Set a portion aside for financial obstacles that may come up like unexpected medical bills or car repairs. Your future self will thank you.
- Pay down lingering debt. After you’ve set aside emergency fund savings, put some cash toward paying down stressful debt. For most, that’s the debt that accrues the highest interest rates, like payday loans, cash advances, and high-interest credit card debt.
- Boost your retirement savings. While it doesn’t sound as exciting as spending your refund on a weekend trip, you’ll be grateful for any extra funds when it comes time to retire.
Don’t forget to treat yourself
The majority of your tax refund should go toward setting yourself up for the best financial future possible. But that doesn’t mean you can’t splurge a little. Treat yourself to a smaller expenditure like a trip to your favorite local restaurant. Or buy yourself something you need, like a new winter coat or a pair of running shoes, but haven’t had the cash to cover. Just remember to plan how much you’ll put toward something fun to be sure you indulge without going overboard.
Talk to a professional
Calculating withholding can be complicated. The IRS has a calculator to help, but talking to an accountant or tax professional may be wise if you consistently receive high refunds. While it’s nice to get that “extra” cash, massive refund checks mean you’ve likely overpaid on taxes throughout the year. A financial professional or advisor can help you determine if that’s the best use of your cash flow.