Financial Expert: Use Tax Refund To Build Emergency Fund, Pay Down Debt

(KNSI) — Taxpayers across central Minnesota have received their tax returns or will get them in the coming weeks. Professor of Accounting and Finance at the College of Saint Benedict and Saint John’s University Boz Bostrom says if you’re one of the ones getting a refund, make sure you have a plan.

“My best advice on this one is to be intentional about it. Think in advance of how you’re going to use it before it just shows up in your account. And it just gets whittled away at the local coffee shops, restaurants, online shopping or something.”

His advice is to put some money away in case of an emergency and pay off debt.

“Create at least some sort of emergency fund. And then once you have that established, then you start paying off your debt. And the benefit of having some sort of emergency fund is that if something happens, you don’t go back into more debt.”

He advises having at least three to six months’ expenses in your emergency account. Bostrom says even if you’re having trouble financially, it’s okay to spend some money on yourself.

“I think you have to take a little bit of it, and have some fun. Most people can afford to do that. If you don’t have any fun with it, money just becomes kind of a depressing thing, which can actually lead to worse problems with money.”

He says to spend some of your tax return on something small like a new outfit or an evening out with your spouse or significant other.

Bostrom recommends spending no more than 10% to 20% of your tax return if you don’t have an emergency fund or credit card debt. He says if you’re in an excellent financial spot, invest the money into a mutual fund or retirement account.

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