So, what are you going to do with your tax refund? The average tax return is in the neighborhood of $3,000. Many people I meet with count on that refund to take a vacation, pay tuition or purchase something new. However, three out of 10 Americans (28 percent) expect to save or invest their tax refund, according to Bankrate’s new poll (’16). How you invest your windfall will be determined by how you plan for it . . . or neglect to plan. Here are some good ideas:

1. Build your emergency fund
Without an emergency fund, just one surprise major expense can send you on a debt spiral toward financial disaster. Ideally, three to six months’ worth of income should be stashed in an emergency fund. But even if you can’t swing that much, any emergency fund is better than none. Open an emergency account if you don’t have one, and sock away at least part of your tax refund. Have a goal of at least $1000 as soon as possible. You’ll be glad you did when the car breaks down or an unexpected medical expense occurs.

2. Pay off consumer 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. Put your refund to work by having a debt pay down plan, prioritizing what would be the debts you want to payoff first and what would be next after that. The average interest rate on new credit cards is just over 15%, and many credit card rates charge even higher rates. Paying down credit card debt is one of the smartest money management moves for your tax refund. Paying down other debt such as a car loan or student loan is also prudent, but not to the detriment of having some reserves.

3. Contribute to a retirement plan
Starting or increasing your contribution to a Work Retirement Plan is a great option, particularly if your employer will match your contributions. Even if you have a 401K through work and you are contributing up to the match, you can open your own individual retirement account (IRA) in addition. As long as you qualify by income (see IRS limitations) you can contribute up to $5,500 to a Roth IRA in 2017, or $6,500 if you’re age 50 or older. If you qualify, you can make this contribution for your spouse too even if they do not have employment income.
You can also set up your IRA, or Roth IRA, to be automatically funded monthly direct from your checking account. If you cannot “afford” this on your current budget, you could speak to your accountant about increasing your tax withholdings to net more in your paycheck every month, and then have that amount invested into the IRA automatically. Be aware that will reduce the amount of your refund every year, but you are then setting up a beneficial discipline that will bless you later financially.

5. Consider getting the insurance you need.
Last month I wrote about Long Term Disability Insurance to cover your income for illness or injury. A few months ago I discussed Term Life Insurance. If you don’t have these in force, maybe now is the time to put those in place. In addition, look into your personal liability – for under $500, you can buy an umbrella liability policy with $1 million in coverage beyond the limits of your car or homeowner’s insurance. You don’t want to neglect protecting you and your family in this “fallen world”.

6. Start a segregated account for a future desire
If you have decided it’s time to get serious about saving up the down payment for a house or want to pay for your next car purchase in cash, open an account just for these big expenses. Keeping the money separate from your regular bank accounts makes money management for major purchases easier and means you’re less likely to dip into it for splurges. This account would not be for college education or retirement; both these accounts should also be segregated and have a disciplined plan.

7. Invest in efficient improvements
If you already have a good interest rate on your house and don’t need to refinance, think about investing wisely to improve your biggest investment – your home. Do you need a new roof? Is your kitchen outdated? Could new energy-efficient appliances lower your utility bills? Home improvement projects can immediately increase the value of your property while simultaneously making your home more comfortable. Many old refrigerators or washer-dryer combos are energy inefficient; consider donating your old appliances to a charitable organization and buying a replacement that’s more energy efficient. You’ll enjoy a new appliance, and your utility bills could be lower as a result. Consider installing water efficient faucets, buy a programmable thermostat, or de-junk and organize your garage. Increasing the value and enjoyment of your home is smart long term money management.

8. Give to charity
Even though I am listing this now, this may be the first thing to consider. Think about the benefit of giving to a productive charity, especially an Evangelical ministry that attends to the souls of the lost and the found. Receiving your tax refund gives you a perfect opportunity to donate money to a ministry that’s close to your heart. Be sure to save your receipts from donating, so you’ll have the proper documentation if you itemize your deductions next year. One important aspect of good money management is sharing some of your wealth with those less fortunate.

9. Invest in yourself
This is not to create selfish pursuits but rather to consider making your tax refund work for you and your family’s future through self improvement. Taking a college course, learning a new skill that’s relevant to your job, or learning a new home-based skill, like cooking, can lower bills and improve your quality of life. If you have been wanting to study to expand your knowledge base or even provide you with a much-needed certificate or credential, your tax refund can provide you with the cash to do it. Similarly, if you have a business and there’s a certain piece of equipment you need to invest in that will increase your productivity, your tax refund could be the source of much-needed capital.
You can even get a new business up and running with your tax refund. It is always necessary to have an accountable business plan before you jump into this venture . . . but this could be the seed money you have waited for.
Think carefully about what you will do with your tax refund. You could certainly spend it on having a good time, but you could just as easily spend in areas that will improve your financial situation, and sometimes for many years to come.

*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual

Jeffery Masters, President of Jeffery W. Masters & Associates, Securities offered through LPL Financial, member FINRA/SIPC. Investment Advise offered through Independent Financial Partners, a Registered Investment Advisor. Independent Financial Partners and Jeffery W. Masters & Associates are not affiliated with LPL Financial. Call for questions @ 954.977.5150 [email protected]