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Investment Advisory Services are offered through Bright Futures Wealth Management and/or Cetera Advisors LLC registered investment advisers.  Securities are offered and sold through Cetera Advisors LLC, - A registered broker dealer. Member FINRA, SIPC. Bright Futures Wealth Management and Cetera Advisors LLC are not associated entities. Cetera is under separate ownership from any other company. Bright Futures Wealth Management is under separate ownership from any other company. Perrotto Private Wealth is under separate ownership.

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8 Smart Ways to Spend Your Tax Refund

February 26, 2018

Last year the average tax refund was $2,857. It's the biggest lump sum most people will get in a year. Here are 8 smart ways to spend your refund check, that can help you go the extra mile, financially. 

 

1. Start or Increase Your Emergency Fund

 

 

Without an emergency fund, just one surprise major expense can send you on a debt spiral toward financial disaster. Most American’s cannot handle a 400 dollar unexpected bill, and according to MarketWatch, most American’s have less than 1000 dollars saved. Many experts say that your fund should contain about six to eight months’ worth of savings in an easily accessible interest-bearing account. Storing that much money might take months (or even years) if you’re just taking a little bit out of each paycheck, so use your refund to make a significant deposit to your emergency fund.

 

2. Pay Off High-Interest Debt

 

After establishing an emergency fund, the next best thing you can do with your tax refund is reduce or eliminate any high-interest debt that you’re carrying. According to CreditCards.com the National average interest rate on credit cards as of 02/22/2017 was 15.07%.  Put your refund to work by starting your debt elimination program of choice, paying off debt consolidation loans, high-interest private student loans, car loans, or credit card debt.

 

3. Pay Down Your Mortgage

 

For example, at a low rate of 4%, the interest on a $250,000 loan will be close to $200,000 - meaning the borrower may pay over $400,000 in total. By paying down your mortgage early, you can make a significant dent in the interest you'll pay over time. This will allow you to build equity faster, enabling you to own your home sooner. Just remember to check for prepayment penalties.

 

4. Invest in a Tax-Sheltered Account

 

Depending on your income level, goals, age, and whether you have already fully funded your tax sheltered accounts, using your tax refund to get a head start on Roth IRA contributions or 529 college savings plan contributions can be a great move. This may result in your three-digit tax refund growing into to a four-digit addition over the course of years.

 

5. Invest in a Taxable Account

 

If you’ve already contributed the maximum to your tax-sheltered accounts, consider opening an account with a financial advisor. Having a financial advisor guide you on different investment strategies may be a great way to continue to build wealth.

 

6. Get a New Business Up and Running

 

Have you been looking for seed money to take your business to the next level? Do you have a venture that you want to start? You can use your refund to move in the right direction. It’s a great opportunity to turn your refund into income for years to come, and get a few more small business tax deductions next year as well.

 

7. Fill gaps in Your Insurance

 

Check out Liability Insurance. Cover your legal expenses if someone is hurt in your home or by your car. It generally costs just $175 to $300 to buy a personal umbrella policy that provides $1 million in coverage over the limits of your auto and homeowners insurance policies. Check your Home insurance. Hurricane season starts in June, so it's a perfect time to use some of your refund money to protect your home. For about $50, you can add $10,000 to $20,000 in sewage backup coverage -- which isn't part of a standard homeowner’s policy. Consider buying a home generator: A 6.5 kw portable generator costs about $800 to $1,000. An automatic standby generator costs more than your refund (about $4,000 plus $3,500 for installation), but the money you get from Uncle Sam can help you start saving for one. You also can pay to trim your trees to help protect against some of the most common types of storm damage and put together a disaster kit.   

 

8. Help your Kid Save

 

You can use the extra money to contribute to a Roth IRA for your child. Your kid is eligible as long as he or she has earned income -- from mowing yards or babysitting, for example. Your child can contribute up to $5,500 or the amount of his or her earned income for the year, whichever is lower, and you can give him the cash to do it.

 

Any of these ways are a great way to spend your income tax return. If you need any help in reviewing any of these strategies, or just guidance to get any of these started, don’t hesitate to reach out to your financial advisor.  

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