Maximize your refund
POSTED IN ARTICLES ON WEDNESDAY, NOVEMBER 21, 2018
What are your plans for your tax refund?
Believe it or not, tax preparation season is just around the corner. More than 70% of tax returns filed with the IRS this year resulted in a refund*, so odds are you could get some money back.
While it can be tempting to blow through the "bonus money" of your refund, that cash can help you advance your goals. Some financial experts suggest spending 20% of your refund on something fun, while reserving the other 80% for something else. Here are some good options:
- Build your credit. You can use your refund to get a secured credit card. Using it for purchases can help establish or increase your credit score.
- Pay off debt. If the interest rate on your debt is higher than the interest you can earn investing, you'll come out ahead by paying off loans. Start with the highest interest rate and pay down as much as you can until your debt or your refund is gone.
- Invest it. If you don't need the money right now, let it grow for a few years in a CD or other investment. You could also make contributions to an IRA or other retirement accounts.
- Save it. The rule of thumb is that you should have a cushion of at least three months' worth of expenses saved up in case you lose your job or have another emergency – and most Americans don't. If you're working toward a big purchase like a car or a home, your refund can put you closer to that goal too, especially if you qualify for a match savings program.
Regardless of what you plan to do with your refund, avoid anticipation loans from tax preparation services. While you may have to wait a few days or weeks longer to collect from the IRS, you'll get the full amount you're due without the middleman taking his cut.
If you could use some financial advice, Veridian is here to help. Stop by a branch near you to schedule a one-on-one consultation today.