Suze Orman: These Are the First 3 Things You Should Do With Your Tax Refund
Written by
Fiona Tapp
Edited by
Amber Barkley
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It’s tax season again, and for many people, that means a tax refund is on the way. While it may feel like a financial windfall, it’s important not to let the money slip away on impulse buys or unnecessary splurges.
As financial expert Suze Orman advises, your tax refund can be much more than a moment of temporary relief — it can be a powerful tool for improving your financial future. In a post on LinkedIn, Orman listed three important priorities to consider when you’re deciding how to use that refund.
Pay Down High-Interest Debt
The first thing Orman recommended you do with your tax refund is to pay down debt. This is vital to take control of your financial health. High-interest debt, such as credit card balances, can quickly spiral out of control if left unchecked, draining your finances over time.
Orman emphasized that credit card debt, in particular, is one of the most damaging forms of debt because of its high interest rates, often upwards of 20%. Using your tax refund to pay down this kind of debt means you’re not only eliminating a financial burden, but you’re also saving money in the long run by avoiding interest charges.
If you have multiple debts, it might be worth considering which one has the highest interest rate and tackling that one first, also known as the avalanche method.
By addressing high-interest debt first, you’re freeing up your money to be used for more productive purposes, like saving for your future, rather than paying creditors.
Boost Your Emergency Fund
After tackling high-interest debt, the next most important step is to build up or strengthen your emergency fund. Orman stressed that a robust emergency fund is foundational to financial security.
Most experts recommend having three to six months of expenses saved, but you may want to save up to 12 months’ worth — enough to protect you in case of unexpected events like a job loss, medical emergency or urgent home repairs.
While this may seem like a large goal, even small increases to your emergency fund can have a big impact. Consider adding your tax refund to your existing emergency savings to give it a significant boost.
Going forward, think about increasing your monthly savings. Just an extra $10 or $25 per paycheck can gradually build the cushion you need to feel financially secure.
Take a Step Toward Financial Security
Once your high-interest debts are paid off and your emergency fund is on solid footing, Orman wrote that the next step is to focus on your long-term financial security. This is where the tax refund can help you make strides toward bigger financial goals, like saving for retirement, investing or funding a child’s education.
Orman frequently talks about the importance of saving for retirement as early as possible. If you haven’t already, consider contributing to a retirement account like an IRA or 401(k). Even small contributions can compound over time, leading to significant savings in the future.
In fact, using your tax refund to fund your retirement accounts can be one of the best investments you make for your financial future.
Reevaluate Your Financial Priorities
As you work through the steps above, it’s also a great opportunity to pause and reflect on your broader financial priorities. Do you have other long-term goals that you’re saving for, like starting a business or traveling the world?
Orman encourages her audience to think about their overall financial picture and make sure that their spending, saving and investing strategies align with what they truly want for their future.
It’s easy to get caught up in immediate desires or external pressures to spend, but it’s important to keep your bigger goals in sight. Well spent, your tax refund can be a step on the path to financial independence, so take the time to consider where it will have the most positive impact.
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