Maximize your Tax Refund – Or should you just Blow It?
Are you looking to put your tax refund to good use? Here are a few tips to maximize your tax refund, rather than just blowing it.
By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™
David Rae Financial Planner LA dispensing tips to Maximize your Tax refund on KTLA News with Rick Chambers.
Are you jumping with joy at the big refund you are getting this tax season? You’ve worked hard all year you should try and maximize your tax refund, and more importantly what that big tax refund can do you for your financial future. Now before you run out and spend it all in one fell swoop, ask yourself why are you getting such a big tax refund windfall? Getting a big tax refund it basically means you have given then government an interest free loan. While I call tell from your screeches of joy you love getting a big refund, you may be better off adjusting your W-4 to end up with a little more pay throughout the year.
Now that I’ve taken all the fun out of your maximized tax refund windfall, it’s time to talk what to do with it? For many of you that tax refund may be thousands of dollars. Carrying some credit card debt? Tired of those annoyingly high interest rates? You might want to get a leg up paying that debt off (or at least down) with a big chunk of your tax refund. Think how nice it will be to not see all that money being flushed down the drain in the form of credit card interest and fees? Feeling better yet? Even if you aren’t your credit cards balances are.
No credit card debt? Kudos to you, now you can move onto the next step towards financial independence. Look at increasing your emergency fund. Ideally you would have 3 to 6 months income saved to help you weather a potential financial storm. We’re talking real emergencies like illness, job loss, or even a car maintenance like new tires. That deal on flights to Havana may seem like an emergency, but I assure you it’s not. For the homeowners out there you many need an even larger emergency fund. I own my home, and there always seems to be something needing a fixing. As a rule it seems plumbing only breaks on weekends and holidays, driving up the cost with time and a half. YAY!
For those of you with a nice emergency fund, congrats! You can take a portion of the refund and put it towards something fun! I normally say take 10% and book a trip, weekend away, or buy yourself something nice. If the whole refund has been spend on the debt and emergency fund- think ahead for next year and the fabulous trip you can take. Smart financial choices make other smart financial choices easier to make in the future. I just spent New Year’s in Havana Cuba, and highly recommend checking it out, now aren’t you glad you paid off your credit cards, and have an emergency fun.
As for the remaining 90% put it towards your more serious and long term goals. Consider additional contributions to retirement accounts like a ROTH IRA or your 401(K) at work. The 401(K) can help you get a bigger tax refund ‘bonus’ next year. If you are looking to buy a home, perhaps the refund can add to your down payment fund.
Many people use their refund to make contributions to their children’s college saving account, or to fund their Health Saving Accounts (HSA).
Congrats on finishing your taxes, and ending up with a nice refund. Keep the momentum and stay on track for your various financial goals. If you need a little more help getting your financial house in order reach out to a trusted Fiduciary Certified Financial Planner for a little extra TLC and guidance.
Live for Today Plan for Tomorrow.
DAVID RAE, CFP®, AIF® is a Los Angeles-based financial planner with Trilogy Financial Services, a regular contributor to Advocate Magazine, Huffington Post, Investopedia not to mention numerous TV appearances. He helps smart people across the USA get on track for their financial goals. For more information visit his website at www.davidraefp.com
Advisory Services provided by Trilogy Capital Inc, a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), a SEC Registered Investment Adviser and broker-dealer. Member FINRA and SIPC. Trilogy Capital, Inc and Trilogy Financial are affiliated by common ownership and are separate and unrelated to NPC. Please consult with your representative to confirm which company’s behalf services are being provided. The opinions voiced in this article are for general information only.