You’re getting a tax refund - congratulations! Now, how are you planning to use it?
“As a financial wellness coach at Greylock, every year I hear people say that they wished they’d used their tax refunds differently,” said Mame Opoku, a member of Greylock’s Community Empowerment Center (CEC) team. “Sometimes people have the money spent before it reaches their account.”
With just a little planning, you can make decisions that will benefit not only the financial health of your wallet but also reduce anxiety around finances and help establish a foundation for future financial success.
“Everybody’s financial situation is different, and there are no one-size-fits-all solutions for everyone, but there are a few approaches that can benefit everyone,” Opoku said.
Build an emergency fund
Most people can manage their monthly bills or day-to-day expenses, but it’s the unexpected events that can create challenges. A tax return can help to meet both anticipated and unanticipated expenses.
Opoku recommends that everyone start an emergency fund to provide a financial cushion in the event of loss of wages, car or home repairs, unexpected health issues, or any other impactful situations. “Think of it as a rainy-day fund that you won’t touch unless there is an urgent need,” she said.
Once the fund is open, Opoku recommends that individuals make continuous contributions to ensure that it grows. “Set up an automatic deduction into the account. Even a couple dollars from each paycheck can really add up over time,” Opoku said.
Pay your future self
Consider using your return to open or contribute to a retirement account. “The magic of compound interest can turn your refund into a comfortable nest egg,” said Stephanie Martin, a Financial Wellness Coach at the CEC. “The earlier you start, the more you’ll have for those golden years.”
“If you are over 50 and have been contributing to your IRA (individual retirement account), catch-up contributions are a way to boost retirement savings by contributing a little extra to your IRAs, your employer-sponsored accounts—including a 401(k) or 403(b)—or even a health savings account (HSA),” Martin said.
Pay down debt
Using your refund to pay down high-interest debt can help to save money over time. “Paying down the balances can not only reduce your stress levels but also help boost your credit score,” Martin said.
Plan for future spending
Think about your future spending goals and then consider setting aside a portion of the refund in a savings account or multiple accounts earmarked for specific purposes, Martin said. “It could be for essential things like new tires or a new refrigerator, or for something fun, like a dream vacation,” she said.
Martin noted that many people like to use their refund to start a holiday club account. “This helps to avoid the post-holiday debt hangover,” she added.
Work with a Greylock financial wellness coach
Lastly, Opoku encourages individuals to speak with one of Greylock’s financial wellness coaches to discuss their options, create a plan to support their goals or just connect for some guidance.
“If you do not already have a financial wellness coach, just reach out to us at Greylock’s Community Empowerment Center,” Opoku said.
Greylock’s financial coaching is available to the community, not just Greylock members. For more information or to schedule a coaching appointment, visit www.greylock.org/cec, call 413-344-1026, 800-207-5555 or stop by any Greylock branch.