The GOP tax bill would cut taxes for the majority of filers in 2018.
“The whole game of our tax returns is about to massively change in 2018,” says David Bach, personal finance expert and bestselling author, “and many of you are actually going to save a fortune on your tax returns. The key is to make sure you take advantage of it and do it correctly.”
For starters, this means not spending your tax refund mindlessly.
“When the government tells us that they’re going to lower our taxes and we’re going to get money back, what they really want us to do is go spend that money because they want the economy to go up,” Bach tellsCNBC Make It. “Here’s what I want you to do: I want your economy to go up.”
To do so, here are the three smartest things to do with your potential savings:
1. Build up your rainy day fund. If you don’t have at least six months worth of living expenses set aside, build up your emergency fund, says Bach.
Life doesn’t always go as planned — you could lose your job, have a medical emergency or deal with a car breaking down — and it’s important to build yourself a safety net.
2. Up your 401(k) plan. The more you can set aside in your employer sponsored retirement account, the better. If you get a windfall from the IRS, increase your 401(k) contributions “by at least 2 percent,” says Bach.
3. Open a “dream account” to start saving for future purchases. Think about something fun or cool you want to do between now and retirement. This could be a traveling outside of the country, going to the Super Bowl or enrolling in grad school.
Then, use your extra savings to “open up an investment account specifically for that dream,” says Bach, and commit to adding to it on a consistent basis.
To get a better idea of whether or not you’ll save on your tax returns — and if so, how much you’ll save — plug your information into the New York Times’ tax bill calculator.
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