If you’re expecting a refund this year, think ahead and come up with a plan on how you will spend it. According to the IRS, the average American taxpayer received a refund of $3,000 in 2017. Spending your tax return on an exotic vacation or shopping spree may seem appealing but, you should think about your return just as you would any other paycheck.
Here are some ways you can prioritize the best things to do with your return:
Pay off high-interest debt first. Whether you racked up a scary credit card bill over the holidays or have any kind of loan, look into which of your debt has the highest interest rate. Try and chip away at that first.
Invest in your retirement portfolio. If you pay off your credit card on a monthly basis, you can opt to invest all or some of your refund into your retirement fund to avoid even more taxes in the process.
Start or increase an emergency fund. Life can be unpredictable. It’s always a good idea to have a little cash set aside for a rainy day. Personal finance experts recommend having 3-6 months of cushion in case of emergency. A fund like this is helpful if you lose your job, come into unexpected medical expenses, or for home or car repair.
Donate to a good cause. Not only does your donation benefit those in need, but you’re also reducing your tax bill. Plus, you could potentially get a donation deduction for next year’s taxes.
Treat Yourself! You worked hard all year long, you deserve to enjoy your hard earned cash. Experts say to use the 90/10 rule. Take 90% of your return and commit to a financially responsible choice. Then, take the 10% that’s left over and splurge on a new gadget or a weekend getaway.
Come up with a strategy that works best for you. Your future self will thank you.
