Tax time is here! It’s hard to believe we are a third of the way through the year, but I am grateful for what’s to come this spring. We get to look forward to longer days, fresh flowers, and hopefully more time spent outside doing the hobbies we enjoy. With spring, it also means that tax season is coming to an end. For some, that means paying in some taxes that are owed. For others, that means receiving a refund for the amount you overpaid. While I am not a fan of receiving a large refund, I would rather be about even on the amount owed/amount refunded, I know there are a lot of folks who do receive a relatively large refund. For those folks that do, this article is for you. Throughout the article, I’ll share with you five ideas on how you can use your tax refund in a financially responsible manner.
- Pay Off Debt: If you have consumer debt such as personal loans, credit card debt, auto loans, or a mortgage, you may consider using your tax refund to pay off additional debt. If you have a few different debts you owe, you may want to consider putting your tax refund towards the debt with the highest interest rate to help reduce the amount of interest you’ll pay on that debt.
- Build an Emergency Fund/Additional Savings: It’s always a good idea to save for a rainy day. If you have not yet saved three to six months’ worth of living expenses, consider using your tax refund to help jump-start building an emergency fund. If you already have an emergency fund, you could use your tax refund to help you reach your savings goals. Whether that’s saving for a down payment on a home, saving for your next car, or saving for a trip, take advantage of receiving these funds that aren’t part of your monthly budget and set them aside for another day. As Benjamin Franklin said, “A penny saved is a penny earned.”
- Invest for your Future: If you’ve paid off debt, outside your mortgage, you may want to consider using your tax refund to invest for your future. This can be done through an investment account or if you have earned income you could look to contribute funds to a Traditional IRA or a Roth IRA. Although you may not get immediate gratification from spending your tax refund today, by investing your tax refund, you can receive the gratification in future years by reaping the rewards of your investment.
- Health and Wellness: I’m a big advocate of investing in your health. Not only are there physical benefits, there are also mental and financial benefits, as well. When you invest in your health it helps to improve the quality of your life, allowing you to live life to your fullest. This could be by throwing ball with your son, going on walks with your family, or being able to get on the ground and play dolls with your granddaughter. A few ways you can invest in your health with your tax refund are by joining a gym, signing up for a fitness class, buying a weight set, or purchasing a yoga mat to work on your flexibility. There are countless ways you can invest in your health, but it can often be an area that’s overlooked when it comes to using your tax refund. Healthy individuals often have lower insurance premiums and fewer out-of-pocket medical expenses as well.
- Invest in Yourself: When was the last time you invested in yourself? In the business of life, it can be hard to find the time to invest in yourself. Using your tax refund to invest in yourself can be a great way to enhance your skills and knowledge. A few of my favorite ideas of how you can invest in yourself are by signing up for a course or certification that will help you progress in your career. This could be a public speaking course, a sales course, or a marketing course. You could also take the opportunity to use the refund and hire a coach. It could be a business coach to help you implement systems and processes for your business or it could be a life coach to help you develop a balanced lifestyle with your career. Additionally, you can invest in books or workshops/seminars that are related to your industry or of personal interest to you.
While it can be easy to do, try not to let the money from a tax refund just go out the window without having a plan for what to do with the money. By being intentional with your tax refund, you can use it in many ways to help you in your pursuit of financial independence. As spring approaches, I hope brighter days are ahead for you and your family!
-By Jacob Young, AAMS®, Financial Advisor, RJFS
313 East 10th Ave. • Bowling Green, KY 42101 • Phone: 270-846-2656
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Ben Smith Life Compass Financial is not a registered broker/dealer and is independent of Raymond James Financial Services.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jacob Young and not necessarily those of Raymond James.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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