It’s tax season, and the temptation may be to take your tax refund and spend it on a luxury item, like a vacation or new big screen television.
The truth is, there are better ways to spend that tax refund, Lisa Greene-Lewis, CPA and tax expert at TurboTax tells TheStreet host Gregg Greenberg in this special video series.
“Deciding what to do with your tax refund is definitely a personal preference, but your best use of the money is to get ahead with your personal finances,” said Greene-Lewis. “For instance, many folks don’t have an emergency fund, but should. So, taking your tax refund and using it to help build an emergency fund comparable to six months of your annual income is a good idea.”
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“If, for instance, your car breaks down or you suffer another big financial setback, you’ll be glad to have an emergency fund,” she added. “You don’t want to use your credit card to pay for emergencies and accumulate more debt.”
Another good use of a tax refund is to build for your financial future.
“Think about investing in an individual retirement account or investing more in your retirement,” Greene-Lewis said. “By doing that, you're lowering your taxable income and saving money on your taxes. You’re also putting away more money for retirement, which is also a good thing.”
If you have cash left over from your tax refund, go ahead and spend it once you have squared away your household financial scenario. “At that point, it’s OK to have a little fun with your tax refund,” Greene-Lewis said.
More tax tips from TurboTax: