Making Smart Uses of Your Tax Refund This Year
Ryan Velez / Financial Juneteenth | 3/2/2017, midnight
A tax refund or other financial windfall makes for a great feeling when you get it, but sometimes, you may find yourself blindsided down the line by the fact that you have little to show for your good fortune. Financial mistakes are a fact of life, but what you should be doing is learning from each one that you make to ensure that you are smarter with your money. With this in mind, a recent article from Black Enterprise has provided some valuable tips to use money from your tax refund this year with a proper purpose to help build your wealth.
Sometimes, the simplest thing to do is just save, and a tax refund is a great example of money to use. For 2017, start by setting up an account that is specifically designated for unexpected expenses. Some may set aside a small portion each month, but you want to have a strong financial on top of that. As a rule of thumb, try and have 3-6 months of monthly expenses set aside, so try and calculate that amount and use money from your tax refund to reach that number.
If you have a number of credit cards creating debt, this is a great way to utilize your tax refunds. However, before you charge into 2017 ready to take down all your debt, stop and take a moment to look things over. After reviewing your outstanding debt, be sure to pay your high-interest credit balances down to a 30% utilization. This raises your credit score and can lower your monthly payments. Generally, it is a better usage of your tax refund rather than simply using the whole sum to pay off credit cards. Of course, cut up those credit cards when you’re done to keep bad habits in check.
Tax refund money is also good to try and set aside for the long term. One such example is using the money for a Roth IRA. These are great for lowering your taxes and increasing retirement savings. They also allow you to take advantage of the tax-deferred compounded growth. Of course, if you are looking to think even further ahead, investing in a permanent life insurance policy may be the way to go. In addition to helping create generational wealth for your family, these can also help your situation while you are still alive. Every year during tax season, you can make an annual contribution, helping you avoid monthly payments while creating another investment.