By Julia K. Pham, CFP®, AIF®, CDFA®, Wealth Advisor at Halbert Hargrove
Cha-ching! Getting a tax refund may feel like a welcome surprise – and like a good time to treat yourself to a fun purchase. But that money wasn’t free: It was your hard-earned cash to begin with. You merely gave an interest-free loan to the government and are now getting it back.
Bearing that in mind, here are some suggestions on what to do with it.
- Cover the basics. Housing, food, medical, and utility bills are all things that you should focus on covering before you spend your tax refund or reach for your credit card.
- Get that emergency fund in place. There’s nothing like a global pandemic to help remind you that it’s wise to have some cash saved for any surprise expenses that pop up. Target between three to six months’ worth of expenses in a liquid account for easy access.
- Pay off that high-interest debt. The typical American household now carries an average debt of $137,879, with part of that figure being from credit cards – one of the costliest kinds of debt. Have an aggressive plan to get rid of your debt; consider paying the balances with the highest interest rates first. All other things being equal, this will save you money in interest payments over time.
- Invest in a solid retirement strategy. The earlier and more often you start saving and investing, the faster you can get your investment gains to start compounding and growing. At first it may feel like you’re running in place, but be patient. After a while you’ll see that account balance grow to a more impactful size.
- Invest in yourself. Take that online class or purchase that book. There’s no greater return on investment than something that leads to your own personal growth and a better future.
How do you balance having the life you want to enjoy today with what you’re going to need in the future? Are you doing what it takes to enter your dream retirement? TAKE OUR QUIZ to find out.