Emergency Fund, Roth, Tax Refund, Tax Return, Taxes
March 09, 2023
It’s that time of year again when I know many of you will be receiving a federal tax refund. And some may also be in line for a state refund as well.
A tax refund is a huge opportunity that I don’t want you to miss out on. The average refund last year was around $3,000. That’s a lot of money that can be put toward all sorts of important financial goals. But you and I both know that’s only going to happen if you make a deliberate effort to make sure your refund is used for a specific goal, or goals. Otherwise, it just lands in your bank account where it can be drained for wants, rather than being earmarked for important security-building needs.
If you are in line for a refund and it’s yet to arrive—or you’ve received it but haven’t spent it just yet— that’s great. You have time to take my 2023 Tax Refund Challenge.
Step 1: Have credit card debt? Paying it down should be your goal.
With the average rate charged on unpaid balances now at 20%, I want you to think long and hard about using a refund for anything but paying down this costly debt.
Step 2: No credit card debt? Ask yourself what would feel great to focus on.
Take a few minutes and ask yourself what would make you feel better about your finances. If that’s one thing, do it!
If you’ve got a list of a few goals, maybe consider dividing your refund among 2 goals. That can be the way to go for couples. If you and your partner have different goals, I hope you will have a great conversation. Maybe you end up splitting the refund between both goals, or maybe that conversation leads to deciding on a mutual goal.
Step 3: Not sure on what makes the most sense?
No surprise, I have some thoughts. In terms of building more security for the here and now, there is no smarter move than working on your emergency savings account if you’ve yet to accumulate up to a year’s worth of living expenses.
In terms of long-term security, increasing your Roth savings is my go-to best move for retirement security. That can be a Roth IRA if you meet the 2023 income limits, or it can be boosting your contribution rate to a workplace Roth 401(k), so your annual increase will be equal to the federal tax refund that landed in your checking account.
Saving, Family & Estate Planning
Credit & Debt, Saving, Investing, Retirement