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Here are some savvy ideas on what to do with that tax refund

Your tax refund may not be enough money to retire on, but it could be the closest thing to an unexpected cash windfall most people will ever experience. For many people this could be a great opportunity to build up an emergency fund or jump start a retirement account. Here are some ideas on how to prioritize where you could put that cash to work for your family.

Coming into a windfall is rare. But for some, it happens every year — in the form of a tax refund. The IRS issued more than $100 million refunds last year, averaging a little less than $3,000 apiece. The average check may be somewhat smaller this year, but it is still a good amount of cash considering that even an unexpected expense of $1,000, such as an unplanned medical expense, a car repair, would cause many people to rely on credit card debt to fund that expense.
A tax refund offers a rare opportunity to improve your financial security by using money you thought was gone but avoid the temptation to splurge all of this “found money”. Go ahead and use 10% of the refund to celebrate or have a nice night out with your spouse or treat the family to a special event. Then prioritize the remaining 90% towards an emergency fund and/or pay off debts. This will help position you for better financial security for the future.
An unexpected expense or unplanned life event, like the loss of a job, typically happens at the worst possible time. These types of financial challenges can arise quickly, and it is critical to have cash set aside for those unexpected hardships. Here on some ideas on how to put your tax refund money to good use and improve your financial security.
  • Save for emergencies. About 40% of adults said that if faced with a $400 unexpected expense, they would either not be able to pay cash, but would have to borrow money or sell an asset, according to the U.S. Federal Reserve. You can better prepare by opening or adding to a savings account that serves as an emergency fund. The target is for you to have about three to six months' worth of living expenses in case of sudden financial hardships such as losing your job or having to replace your car, but even one month is a start. This fund should be in cash and not an investment like stocks, bonds, or even the equity in your home.

  • Pay off debt. Total credit card debt is at its highest point ever, surpassing $1 trillion dollars, according to the U. S. Federal Reserve. The average person has a credit card balance of over $4,000, according to the latest Experian data. Start by figuring out what you owe, then decide whether to use the "debt avalanche" or "debt snowball" method to pay down debt. Either method is good, just find the one that works best for you and put it into practice.

  1. The “avalanche method” focuses on paying off your debts from highest to lowest by interest rate. That way you target paying off the debts with the highest interest rate first, while making the minimum payment on all the others.

  2. The “snowball method” prioritizes your smallest debts first, regardless of interest rate. You target paying off the smallest debt first, while making the minimum payment on all other debt. Then as you pay off small debt you apply that cash to the next debt on the list, and so on.

  • Save for retirement, education or future health expenses. This is a great opportunity to open or boost contributions to a retirement account through your employer’s 401(k) plan or start your own Traditional or Roth individual retirement account. For those people with school-aged children, look into opening a tax-advantaged 529 college savings plan. Alternatively, get ahead of healthcare costs by investing tax-free dollars in a Health Savings Account.

  • Pay down your student loans. Putting an extra payment toward your student loan will save money on interest and reduce the length of your loan. Specify that those extra funds get applied to the principal of the loan and not to future interest payments.

  • Pay down your mortgage or invest in your home. Putting an extra payment toward your home loan will save money on interest and reduce the length of your loan. Specify that those extra funds get applied to the principal of the loan and not to future interest payments. For those who want to retire debt-free, this might be an opportunity to reach that goal a little faster. A home improvement project is another way to reap a return from those hard-earned dollars by increasing the value of your home in the long run, with the added benefit of giving you some enjoyment in the near term. This can include small, cost-effective upgrades such as energy-efficient appliances or new windows.

  • Donate to charity. Putting your refund toward the charity of your choice will not only make a difference in your community, but you can also claim the tax benefit on next year's return, if you itemize.

If you are looking for a Financial Consultant that can work with you to develop a strong strategy for next year - contact Stephen Westurn (214.240.0701) or Stephen@Westurnconsulting.com for a complimentary session. Check out the website: www.Westurnconsulting.com .

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