Watching Your Wallet: Experts give advice on reining in your tax refund

RICHMOND, VA (InvestigateTV) - A flashy new car, a tropical summer vacation, granite kitchen counter tops.

It's OK to splurge a little bit when you get your tax refund, but it's better to pay down some debt or start a savings account. (Source: InvestigateTV)

Everyone can all think of a lot of ways to spend some extra cash.

InvestigateTV asked several people for their plans and got a variety of answers: Investing in businesses, paying off student loans and bills, and saving for college.

Fixing a car or using the money to travel were other big answers.

“It’s OK to treat yourself a little bit maybe buy that new coat you’ve been eyeing or go out to a nice dinner, but you don’t want to blow your entire refund on impulse purchases,” said Kelsey Sheehy, a personal finance expert with NerdWallet.

Sheehy said it’s OK to splurge, in moderation. But she advises people to have a plan in place before the refund ever deposits into a bank account.

Her biggest advice was to use most of the money to pay down debt, starting with the most expensive credit card, with the highest interest rate.

“If you’ve built up a balance (and a lot of us have over the holidays), and if you’re still trying to pay that down, a good use of your tax return is to just pay down your credit card balances,” Sheehy said.

Another good idea is to start a savings account or build up an emergency fund.

“Start small. Start with $500. That actually covers a lot of the major financial emergencies that people will come across,” Sheehy said.

Sheehy said it is important not to set a goal that is too large or overwhelming.

“Don’t get fixated on ‘I need 6 months of emergency savings. I need $100 of emergency savings. I need $500.’ Any bit of an emergency savings is going to put you in a better position than no emergency savings,” Sheehy said.

Another idea Sheehy mentioned is putting money in an Individual Retirement Account, better known as an IRA. While those accounts are inaccessible for years, the money will grow faster, she said.

“It’s not the sexiest way to spend your refund putting it into an IRA, but it is a really smart move.”

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