Suze Orman Has This Advice for Putting Your Tax Refund to Good Use

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Have a tax refund coming your way? Read on for some great advice for making the most of it. 

This year, tax refunds are expected to be smaller than last year due to a number of pandemic-era benefits coming to an end. But that doesn’t mean you won’t end up with several hundred dollars in your bank account — or several thousand, depending on your tax situation.

That gives you a prime opportunity to put that money to good use. And if you’re not sure what to do with your refund, it pays to heed this great advice from financial expert Suze Orman.

1. Focus on credit card debt first

Credit card interest rates can be painfully high. It’s for this reason that so many people commonly get trapped in a cycle of debt. If you’re carrying a balance on a credit card, it pays to use your tax refund to pay it off or at least whittle it down.

And while you’re at it, you may want to see if you qualify for a 0% introductory interest rate credit card. If you have a remaining balance after applying your tax refund, transferring it over and getting a break from accruing interest could make your debt easier to knock out.

2. Ask yourself what specific financial need you have

Maybe you’ve been putting off a big home repair due to a lack of money. Or maybe you really need to take a class to boost your job skills so you can seek out a higher-paying role, but a lack of money has been holding you back. These are the sort of things you might consider spending your refund on if you don’t have a nagging credit card balance to deal with.

3. Build some near- or long-term savings

Your next tax refund could make it possible to build yourself some financial security. And there are a couple of ways to go about that.

First, if you don’t have enough money in your savings account to cover at least three full months of essential living expenses, use your tax refund to boost your emergency fund. In fact, Orman suggests accumulating up to a year’s worth of bills in emergency savings. That buys you a ton of protection in the event of a recession, when jobs tend to be lost and finding work can be difficult.

If you’re feeling confident in your emergency fund, you can focus on building long-term savings. That could mean contributing your refund to an IRA account you withdraw from in retirement.

Now, Orman happens to be a big fan of Roth savings accounts, which give you tax-free withdrawals. That’s a huge benefit to enjoy in retirement, when money might get tight.

You may want to consider putting your refund into a Roth IRA. And if you’re saving in a workplace 401(k) plan, see if there’s a Roth option there, too. The upside of putting your refund into a workplace retirement plan is that your employer might match your contribution to some degree.

There are some people who won’t be getting a tax refund at all this year. But if you have a pile of money coming your way from the IRS, think about the ways you can use it to save yourself money and improve your financial picture. Also, think about how you can use your refund to eliminate a source of stress in your life (like a home repair hanging over your head). Addressing stress points could have a really big impact.

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