It’s official: Tax Day is tomorrow, and by now, most of us taxpayers have filed the paperwork and are anxiously awaiting our tax refunds. For those of you who haven’t filed, consider this a friendly reminder to get your sh*t forms together.
In 2017, the IRS issued nearly 112 million refunds, averaging $2,895 apiece. That’s a nice chunk of change.
While you may be tempted to run out and splurge, take this time to think about your overall financial picture and consider investing in your future. According to a survey by GoBankingRates, one third of Americans plan to use their tax return to pay off debt, which a great start, while 43 percent said they plan on putting the extra cash in a savings account.
To learn other ways to make the most out of your tax return, we reached out to Wendy Liebowitz, Vice President and CFP of Fidelity Investments. Check out her smart money moves below.
Make an emergency fund a top priority
Use your tax refund to build up emergency savings, says Liebowitz. “Emergencies, or unexpected expenses, such as car and home repairs, unforeseen medical bills, or even job loss, often happen without warning, and you’ll thank yourself for being prepared! ” Fidelity recommends setting aside between three to six months’ worth of essential living expenses in an emergency fund. By opting for a direct deposit when filing your taxes, you can automatically deposit your refund, for free, in up to three savings accounts in U. S. financial institutions.
Watch your tax refund grow for the future
Once you receive your refund, you may want to consider contributing more, even if it’s just one percent more, of your monthly paycheck towards your workplace retirement savings account. If you haven’t already, opening a Roth or Traditional IRA and investing your tax refund is another great way to grow your money for retirement, explains Liebowitz, especially if your employer doesn’t offer a retirement savings account or if you’re self-employed.
Broaden how you think of “treating yourself”
If your heart is set on spending the extra money, commit to a split. “While we all love treating ourselves to a splurge purchase like a spontaneous trip or wardrobe refresh, it’s important to balance this by saving and investing some of your tax refund, too,” she says. “Decide up front how much you’re willing to spend versus how much you want to save and grow for the future. Whether it’s 50/50, 40/60, or whatever makes sense for your situation, commit now so you can have your splurge with a clear conscience and still stay on track and feel great about your financial goals. ”
