3 Ways to Pay Your Tax Refund Forward ... To Yourself
The US government sends out billions of dollars in tax refunds each year. So if you’re getting a refund this year, here’s how to make the most of it.
The US government sends out billions of dollars in tax refunds each year, and the average direct deposit amount is $3,390 for this season through April 10. So if you’re getting a refund this year, here’s how to make the most of it.
Tax refund move #1: Get covered for emergencies.
As kids, we were all taught to call 911 when disaster strikes. But in the case of a financial emergency, your local switchboard operators probably can’t help you. That’s why having an emergency fund is a big step toward financial freedom.
We recommend starting out by building up a cushion of about one month’s take-home pay as soon as you can. So if you’re not there yet, stash some of that tax refund away in an easily accessible savings account. This is “life happens” money, and it needs to be on hand immediately if and when (hopefully if) you need it.
A good guideline is to ultimately aim to keep three to six months’ worth of take-home pay in there.
Tax refund move #2: Pay down that credit card debt.
We recommend paying off your high-interest (which usually means “credit card”) debt, if you have it, before you invest. That’s because high-interest credit card payments are likely to eat away at any investment returns (or cancel them out altogether). Your goal with any money move is to make progress, not tread water. So if you have that mini emergency fund in place, use those extra tax dollars to put an additional dent in that credit card debt next.
Tax refund move #3: Put those tax dollars to work
If you’ve already worked hard to build emergency savings and pay down your credit cards, congrats!
Now you have a choice: You could either let that refund sit in the bank and earn little to no interest, or you could put it to work for you and your most important goals — creating the retirement you’ve been daydreaming about, launching that business idea, getting to a down payment on the house with the pool/outdoor kitchen/majestic views/room for kids/all of the above.
We think one of the smartest money moves you can make is to invest regularly into a low-cost, well-diversified investment portfolio. If you’re just getting started, use your extra tax money to make a big-time contribution to your plan, and then set up smaller, automatic contributions going forward.
About Ellevest
Founded in 2014, Ellevest is a women-founded, women-led financial services company dedicated to closing the gender wealth gap. Our mission is to get more money in the hands of women, their families, and the next generation through personalized, intentional wealth management, and financial planning.
