You Got Your Tax Refund; Now What?

Congratulations. You worked hard this last year, you filed your taxes on time and Uncle Sam is rewarding you with a little extra cash.

Of course, this isn’t really a gift, and you certainly aren’t special. According to the IRS, the average tax refund in 2015 was $2,704. People spend this money in a variety of different ways. Some use it to pay for necessities, like housing or medical care. Others use it to pay for luxuries, like a new watch or trip to the Bahamas. And then some people choose not to spend the money at all.

“Of course, there is no right or wrong way to spend your tax refund, but you should consider your long-term financial goals when determining where to place that money,” said Joe Correnti, senior vice president of brokerage product at Scottrade. “Using that money to build more financial security can set you up for increased wealth for years to come.”

If you’re hesitant to spend your money this year, here are some potential good uses to consider for that refund check.

  • Boost your rainy day fund: Many people in America are truly living paycheck to paycheck. According to a report released last year by the Federal Reserve, 47% of Americans wouldn’t have sufficient funds on hand to pay for a $400 unexpected expense without borrowing money or selling valuables. Not having money to cover an unexpected medical bill, car breakdown or even job loss can cause significant financial pressure. Financial experts generally recommend building an emergency fund to cover 3-6 months of expenses in an account where the funds are easily available. This will give you some breathing room for those pesky financial realities we all face.
  • Invest it: Maybe your IRA isn’t quite as big as you would like it. Or maybe you need to give junior’s college fund a little boost. Whatever your financial priorities are, consider investing that money to help meet long-term financial goals. Even if you’ve maxed out your retirement accounts and don’t have to save money for a child’s education, you may want to consider investing in a traditional taxable investment account.
  • Pay down debt:  Debt is like investing in reverse – the longer it takes you to pay off the money, the more interest you’ll end up paying. Therefore, you may feel a lot better about your finances if you end up taking a big bite of that debt. If you have a lot of high-interest debt – such as credit card debt – you may want to focus on paying that off before tackling lower-interest debt in order to maximize your interest savings.

How do you plan on using your tax refund this year?

Read Next: How Many Investment Accounts? Let Your Plan Be Your Guide.

Next Step: Check out products and account types that can help you manage your money.

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.

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