How Should I Spend My Tax Refund?

March 16, 2023

by Christian Phillips

How do you plan on spending your 2023 tax refund? If you haven’t decided, here are a few suggestions. 

Pay off Debt: 
It is recommended to start paying off accounts with high-interest rates. That said, if you have accounts in collections, you may want to pay those off first. Lenders tend to be less inclined to approve credit inquiries when you show a pattern of not repaying debts.
[Definition]
  • What are collections? Debt collections include unpaid credit cards, auto loans, mortgages, utilities, phone, medical, and other qualified accounts.
 Debt collections can have a significant impact on consumer credit scores and reports.

Emergency Savings: 
Emergency savings can help consumers cover unplanned expenses such as accidents, home repairs, car repairs, etc. Even in times of unemployment, this fund can cover expenditures for a few months. Setting aside at least 2-3 months of expenses is standard practice.
Emergency savings should be deposited into a different account, separate from day-to-day spending. The account should still be easily accessible. Avoid accounts that incur early withdrawal penalties, such as certificates of Deposit (CDS) and Individual Retirement Accounts (IRA).  

Make an Extra Payment: 
Do you want to pay off your mortgage or auto loan faster? Making the occasional extra payment(s) during tax season can save you money long-term. Ensure additional payments are being applied to the principal of the loan. This is important because paying down will reduce the interest you pay over the loan period.

Retirement Fund: 
You don’t want to work forever, do you? Allocate a percentage of your tax return to help increase contributions to an employer-provided 401(k) or individual retirement account (IRA).

Certificate of Deposit: 
Are you interested in a low-risk investment option? Consider opening a certificate of deposit (CD).
[Definition]
  • What is a certificate of deposit? A Certificate of Deposit (CD) is an account where consumers can deposit money and earn interest for an indicated period. CDs generally pay higher interest rates compared to standard checking and savings accounts.  
[General Guidelines]
  • Earns Interest
  • Terms vary from 3-60 months
  • $2,500 minimum opening balance
  • Early withdrawal penalties may apply.
Simple Savings:  
Do you want to save money for a house, car, college tuition, vacation, or retirement? Make a list of short and long-term goals you want to achieve. Once that is complete, create a timeframe; when do you want to accomplish this goal? This will help you determine how much needs to be allocated to the savings account each pay period.

[Final Thoughts]
If you are interested in making an additional payment, opening a certificate of deposit, or opening a savings account, contact your local Frandsen banker.
To learn more about our CDs and Savings account options, visit the following links:

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