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business Wednesday 9 March 2022
How to put your tax refund to work for you

A box filled with dollar bills is shown in New York, Wednesday, April 3, 2019. Associated Press

By KIMBERLY PALMER planner in Newport News, ting money into an emer- also focusing on student are not already maxing out
of NerdWallet Virginia. "That can help gency savings fund before loans, medical debt and their 401(k), that increase in
If you're eagerly anticipat- with monthly cash flow," any other priority, including anything else that carries a contribution makes them
ing a tax refund in the com- he adds. Another option is paying off debt. variable rate. feel more secure and re-
ing weeks, you have good to adjust your withholding "With inflation, you want to Maggie Klokkenga, a fi- sponsible." In some cases,
reason to be optimistic: The to every paycheck so you save a little bit more than nancial coach and CFP you can front-load your
IRS reports that about 77% don't pay more tax than normal to plan for those in Morton, Illinois, suggests contributions, Biggica
of tax returns filed last year you need to. But, Blackburn crazy gas and food prices. using an online debt cal- adds, which means you
generated a refund, and adds, some people pre- We don't know what will culator to see how making reach the annual contribu-
the average refund was fer to receive a lump sum happen next," says Scott extra debt payments can tion limit before the end of
$2,815. each year as a method of Alan Turner, a CFP in Aledo, speed up the debt payoff the year. As a result, your
Even though what can feel forced savings. Texas. While financial ex- process. That can help you take-home pay will be
like a gift from the govern- While your refund priorities perts often cite the goal of decide whether to first pay higher by November or De-
ment is actually a delayed depend on your particu- having three to six months off your smallest debts or cember, which offers flex-
receipt of your own money, lar situation, there's room of expenses tucked away, larger, high-interest ones. ibility to pay for end-of-year
the best use of those funds in almost every budget to a more realistic goal can "You can see how quickly costs like holiday spending.
is not always apparent. This spend at least some por- be saving $500 to $1,000, or you can have everything
year the question is even tion of your refund check at least half of your refund. paid off," she says. SPLURGE WITHIN LIMITS
more fraught, with many on something fun, too. Here Given rising prices, Turner After taking care of emer-
households facing increas- is a road map to help you says it's better to save more MAKE ROOM FOR OTHER gency savings and debt
ing financial pressure from decide what you should do if you can. "If your industry is GOALS, TOO payments, there might not
inflation, rising interest rates with the money: shrinking, you'll need a larg- If you already have your be enough left from the
and expiring government er emergency fund," Shorb emergency fund and refund to make a huge
assistance programs tied to SAVE FOR THE NEXT says, because it could take high-interest rate debt ad- purchase like a car, but
the pandemic. Advance EMERGENCY longer to find a new job if dressed, then Klokkenga Turner suggests squeezing
child tax credits, for exam- "First, think about your near- you lost your current one. suggests putting the refund in something enjoyable.
ple, which offered families term security," suggests cash in high-yield online "Go out and celebrate with
monthly checks based on Vince Shorb, CEO of the UNLOAD HIGH-INTEREST savings accounts dedicat- something frivolous and
their income and number Las Vegas-based National DEBT ed to different goals, such entertaining: a nice steak
of dependents, have end- Financial Educators Coun- With interest rates widely as a vacation to Cabo or dinner, new designer jeans,
ed pending further con- cil , which supports finan- expected to rise this year, retirement. "When it's not in concert tickets," he sug-
gressional action. cial wellness educators. credit card and other vari- your checking account, it's gests. His guideline: Plan to
"For many people, the ad- "There are a lot of things able-rate debt would likely harder to get to and gives spend about 10% on fun.
vance child tax credits be- going on, from COVID to become more expensive, you a pause before you For the average refund re-
came a part of their bud- inflation. I want to make which makes using refund can get the money," she cipient based on last year's
get, so you should consider sure people have food on money to pay it off a smart says. IRS numbers, that's about
saving your tax refund and the table and gas to get move, says Mike Biggica, Increasing your contribu- $280.
using it to supplement your to work," in the event of a CFP in San Francisco. He tions to existing retirement It probably won't fund a va-
monthly budget going for- an emergency like job loss suggests paying off any accounts such as a 401(k) cation, but it could signifi-
ward," says Tommy Black- or unexpected expense, debt that carries an inter- is another solid option, Big- cantly glow-up your week-
burn, a certified financial he says. That means put- est rate of 6% or higher and gica says. "For folks who end plans.q