Expecting a tax refund this year? Resist the temptation to splurge on a designer handbag or a vacation - instead, make your tax refund work for you by strategically allocating it to vehicles that can help build financial stability and health. Read on for financial advisor Steve Sexton's best tips.
update your emergency fund
I recommend having at least 6-months' worth of living expenses saved in your emergency fund to ensure you're covered in the event of unexpected job loss, an accident, or a medical diagnosis. If your emergency fund is already fully funded, consider updating the amount saved to reflect recent inflation rates.
pay off high-interest debt
Use your tax return to pay off high interest debt, prioritizing anything with an interest rate of 7% or higher. Start with the debt with the highest interest rate, then work your way down as you pay off each debt.
contribute to retirement accounts
Use your tax refund to contribute to your IRA or 401(k). If you're enrolled in a 401(k) program that offers employee matching, contribute as much as you can to the maximum - otherwise, you're leaving free money on the table.
open a high yield savings account
Allocate your tax refund to an HYSA, which offers a much better interest rate than a traditional savings account.
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