The author, financial planner Hanna Horvath.

If you’re getting a tax refund this year, consider using it to build wealth instead of splurging.
Use it to pay off credit card debt and student loans, or beef up your emergency savings.
Or invest it in a retirement account or brokerage account. After all that, treat yourself.

The deadline to file your 2021 taxes was April 18, so unless you filed for an extension, you’ve likely filed your 2021 taxes by now. Whether you used a tax-filing software, accountant, or did them yourself, the hard part is (mostly) over. Depending on how much you withheld or paid throughout the year, you either owe money or will receive a refund.

If you paid too much in estimated taxes or withheld too much from your paychecks, you’ll likely receive a tax refund. This year’s average refund so far is $3,226 — that’s quite the chunk of change!

If you have already received or are expecting to get a refund this year, you may be thinking about what to do with the money. Before you run out to make a big purchase, I’d like to recommend stepping back and making a plan.

As a financial planner, I’m a fan of balancing long-term goals over short-term rewards. Sure, using your tax refund to buy a new pair of shoes or luxury vacation sounds great in the moment, but it’s important to weigh the instant gratification of splurging with the long-term benefit of setting yourself up financially for the next year and beyond.

A refund (or any windfall!) is a great chance to kick-start a money goal or improve your financial situation. Here are my five favorite ways to use your tax refund.

1. Boost your emergency fund

Emergencies can happen at any time. Some are one-time expenses — a sudden medical bill or home repair — and others are longer-term, like job loss.

This is what makes having emergency savings so essential. An emergency fund can help you avoid borrowing money to cover costs. If you don’t have an emergency fund, your refund is a great place to start. I recommend having around six months’ worth of expenses, including the amounts you spend on necessities like rent, food, utilities, and gas for your car. But remember — any amount saved is better than nothing at all.

Store your emergency money in a savings account that’s easily accessible, but separate from your checking …read more

Source:: Business Insider

      

5 smart ways to spend your tax refund to build wealth, according to a financial planner

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