Last month we talked about tips for filing your taxes. Hopefully, you've filed or are getting ready to as the deadline is less than a week away! Financial professional Dale McCarty, President of Retirement Designers Financial, is back with tips for some smart ways to use your tax refund.
1. For individuals who might be expecting a refund this year, it could be a good time to ask, what are some financially responsible ways to use it?
- If you receive a refund this year, one of the first thing I recommend is paying down any debts. So, you might want to consider paying down the debts with the highest interest rates. For some people, that would be credit cards.
- The other thing you might want to consider doing with your refund is saving it! You could think about setting up a "rainy-day" savings account if you don't already have one. We like to suggest people have 3-6 months' salary saved up for unexpected expenses. This could also be a good time to replenish savings that may have been tapped into during the holidays.
- Consider putting some of the refund towards your retirement savings.
2. What if you're tempted to use it for a big purchase – something fun?
- Try and avoid shopping sprees! Don't spend it before you receive the actual check. We don't recommend spending the entire check on one big purchase.
- Instead, the next tip would be to spend it on something you need. Perhaps you need a new appliance for your home, or you need to get a car or home repair you've been waiting on.
- Overall: It can be helpful to have a plan. Look at your finances and decide what could work for you: That could mean using 1/3 of it to pay off credit card debt, another 1/3 to put into retirement, and the remaining 1/3 to put into your savings account.
3. Tax refunds can be a nice surprise, but are there some actions individuals can take today that could help for next year?
- Yes, ideally, you shouldn't be receiving a big refund. Instead, meet with a professional so he or she can make sure you have the correct withholdings. Then, you'll be keeping more in your paycheck year-round. With that money, try and make sure you are adequately saving for retirement. We have some calculators and helpful tools on our website: https://www.retirementdesignersfg.com.
- At the very least though, try and make sure you are signed up for any employer retirement plan and take advantage of a company match.