CPA Rockville – How to Spend Your Tax Refund

Posted on: March 25th, 2010 by

CPA Rockville – Its tax refund time!  For many people, this is largest chunk of change, outside of a paycheck, that they will get all year.  Before the economy took a turn, this was the money people would use to splurge on a vacation, a new pair of shoes, or a very small meal for a very large price.  But now, even though we are told the economy is beginning to recover, we must be practical with this money.

Rockville CPA - Tax RefundFirst, you should consider re-building or building your emergency fund.  If the last two years have taught us anything, its that unexpected things can happen: job loss, loss of income from investments, or unexpected expenses popping up at an inconvenient time.  It is generally a good rule of thumb to keep 3-6 months of expenses tucked away in a secure place to give you the financial wiggle room that would prevent you from scrambling to stay afloat.

Second, if you already have an emergency fund, you should consider repaying high interest debts.  Credit cards are prime candidates.  By applying your refund to these debts, you are eliminating additional amounts spent on interest in the future.  The money that would have gone to principal and interest payments each month could then be invested for your future.

Third, and finally, if you have your emergency fund set up and have made a dent in your credit card/high-interest debt, you should think about investing your refund.  If you don’t already have a diversified portfolio, it is a good idea to think about building one.  Making a plan with a financial planner in Rockville and discussing your retirement is a good way to begin.



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