Here’s How To Use Your Tax Refund To Increase Wealth

Originally Published Jan. 2, 2017.

Have you ever gotten a tax refund or lump sum of money and months later felt like you had nothing to show for it? If this has happened to you, it’s OK to make mistakes. However, it is not OK to repeat them.

You are a wealth builder, and as a disciplined wealth builder, you must have a plan for your tax refund. It’s about time we give your money a purpose. Here are some ways to use your upcoming tax refund wisely.

Start or increase your “in-case-life-happens” fund

There will always be unexpected expenses that require you to use money. Face it: life happens! Unexpected expenses will always come, but it is only considered an “emergency” if you’re unprepared.

Start with an account ready for any unexpected expense that comes your way. Saving something small every month is great, but why not jump-start the year with a solid foundation? The goal is always to set aside three to six months of your monthly expenses. So, be sure to determine that amount and deposit a portion of your tax refund into your savings account.

Pay down your high-interest credit cards

If you are like most people, the thought of owing someone is often annoying. You’d rather just get it over with, pay them off, and go about life without the thought of having to pay yet another bill. Review your outstanding debt, and only pay your high-interest credit balances down to a 30% utilization. By just paying your high-interest credit cards down, you will increase your credit score, and you can potentially lower your monthly credit card payment. Do not spend your entire tax refund on paying down debt.

Once you’ve paid the credit cards down, CUT UP THE CREDIT CARDS. There is no point in paying down your credit cards just to use them again. Grab some scissors, and end that bad habit immediately.

Invest in a Roth IRA

Paying down debt is important, but how long will you defer your wealth just to pay down debt? While building a plan to pay everyone back, make sure you take care of yourself!! Depending on your income, age, and financial goals, use your tax refund to open a Roth IRA. Roth IRAs are a great way to help lower your taxes and increase your retirement savings. Roth IRAs also allow you to take advantage of the tax-deferred compounded growth. Just think: when you retire, you don’t want to live off less income, right? If you’d like to be better financially in the future, it is time to start planning for tomorrow, TODAY!

Invest in a permanent life insurance policy

Life insurance is one of the best ways to create generational wealth for those most important to you. Having a life insurance policy in place should be a standard for people of ALL ages because it helps ensure that, as a community, we are leaving our families in better financial positions. However, life insurance can also be used as a way for you to invest your money and use it while you are living. By utilizing permanent life insurance to help grow your money, depending on the company and product, you can also receive downside protection (if you are uncomfortable with watching your money go up and down with the stock market).

Every year during tax season, you can contribute annually to your policy. This way, you do not have to worry about monthly payments. Not only will you have one less monthly bill, but also another investment that can help create AND pass down wealth. Key items such as your age, health, and income will help determine how your local agent should structure your policy. Companies such as Nationwide, Pacific Life, and Transamerica Premier have great permanent life insurance policies that many people can take advantage of.

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