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.
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