How to use your tax refund? Here’s what Suze Orman thinks


Image source: Getty Images

One might wonder if getting a large tax refund is a good thing. When you get a huge amount of money from the IRS, it means you have given the government a generous interest-free loan for nothing in return.

But the reality is that most people who file a tax return To do end with a refund. And as of mid-March, the average refund was over $3,000, which is no small amount of money.

Financial expert Suze Orman thinks it’s important not to blow your refund, but rather to use it to improve your financial situation. Here’s what she strongly recommends doing with that money.

1. Boost your savings account

Increasing your savings account balance is perhaps the most important thing you can do with your tax refund, especially if you’re behind on emergency savings. As Orman says, “If your emergency fund doesn’t yet cover up to a year of living expenses, now is a chance to add more.”

Now, Orman’s suggestion of having a year’s worth of living expenses in savings on hand is a bit aggressive. Many financial experts will tell you that having enough cash to cover six months of bills is more than enough. But if you prefer extra protection, which Orman clearly advocates, you might want to bank your tax refund to achieve that goal.

2. Fund your retirement plan

You will need money in retirement in addition to what Social Security will pay you. It’s important to contribute to a retirement plan like an IRA during your working years.

This year, IRAs are capped at $6,000 for savers under age 50 and $7,000 for those age 50 and over. If you normally struggle to reach this contribution limit, your tax refund could help you get there. This means taking advantage of tax breaks, which IRAs are loaded with. And the sooner you fund an IRA, the more room you’ll give that money to grow.

3. Pay off your mortgage if retirement is approaching

Many of us are used to making a monthly mortgage payment. But it’s an expense you might want to give up once you retire and move to a fixed income. If you get a tax refund, Orman thinks it’s a good idea to use it to pay off your house.

“It’s so smart to get rid of the mortgage payment before you retire,” she insists. While you may not feel obligated to make additional mortgage payments if you are years away from retirement and on track to have your home paid off by then, you may want to follow Orman’s advice if retirement is approaching and you still have a large mortgage. balance.

4. Tackle major maintenance projects

Taking care of your car and home could help you avoid costly repairs and headaches later. If there’s a specific maintenance item you’ve put off due to a lack of funds, it pays to use your tax refund to get you back on track.

5. Boost your professional skills

Sometimes it takes money to make money – or more, at least. That’s why Orman thinks it makes sense to use your tax refund for career advancement. “Whether it’s a course taught online or at your community college, or a series of appointments with a career coach, focusing on your career advancement is a great investment,” he insists. -she.

As tempting as it might be to take your tax refund and go on a fabulous vacation, it pays to heed Orman’s advice. A vacation or similar splurge might offer instant gratification, but the steps above could set you up for years of financial success.

The best credit card cancels interest
If you have credit card debt, transferring it to this superior balance transfer card can pay you 0% interest for 18 months! It’s one of the reasons why our experts rate this card as a top choice to help you control your debt. This will allow you to pay 0% interest on balance transfers and new purchases during the promotional period, and you will not pay any annual fees. Read our full review for free and apply in just two minutes.

We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


nasdaq

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button