Tax returns are expected to be 29% smaller this year, according to the IRS's preliminary data ahead of the 2024 tax season. Furthermore, nearly 70% of Americans affirm their tax refunds are vital to maintaining their financial security.

Self Financial Head of Community Monique White joins Yahoo Finance Live to discuss the best saving strategies, including how to reinvest tax returns to build wealth this tax season.

"If you are living paycheck to paycheck, you're struggling with your monthly essentials, and managing your debt, what that tells me is every dollar counts. It may be a good time to look at your W-4 and adjust your holdings so you can have more money up front to manage those things," White explains.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

RACHELLE AKUFFO: Nearly 70% of Americans say their tax return is important to maintaining their financial security this year. That's according to data from Self Financial. So what can consumers do with their tax returns to build wealth? Let's bring in Monique White, Self Financial Head of Community to discuss more.

Good to have you on the show here. Important to note that for a lot of people, they're saying, oh, when I get my tax refund, I'm going to splash out on this. But this is also an opportunity to build wealth. What are the top three strategies people can use to use their returns to build wealth?

MONIQUE WHITE: Yeah. So if you are expecting a return and you're looking for ways to optimize your refund, there are a few things that you can do, big three. The first is to save. So building an emergency savings is extremely important and making sure you can cover that whenever it comes up.

The rule of thumb is that you should save at least three months of your living expenses, but we know that that's tough for a lot of Americans. So try to put away something from your refund just to cover a small emergency. The next is to manage your debt. Catch up on any late payments. Try to pay down your balances so that you're not paying too much on interest fees.

And the next is to prioritize your credit. I personally think credit is a topic that's overlooked a lot of times. And credit is just way too important to do that. You need credit to rent an apartment, to qualify for better interest rates or certain loan products, so taking your refund and investing in your credit. Self offers multiple products that fit into your budget at different multiple price points so that you can confidently build your credit.

AKIKO FUJITA: You talk about building your credit, paying down debt. I wonder when you look at how this particular refunds use, I mean how many Americans are relying on that specifically at the end of the fiscal year?

MONIQUE WHITE: Yeah. I mean, we know that 100 million people in the US have subprime credit. And what that's telling me is that they're using credit to supplement their income, and that's why their credit card has gone down. So we know people are struggling financially right now because of inflation. We just exited our holiday season, so credit card debt is up right now. Student loan payments resume. And 70% of our customers feel like they need their refund to maintain their financial security. And 37% of Self customers have said they're using their refund to pay their bills.

RACHELLE AKUFFO: And in terms of if you do have a big refund, that's usually a sign that perhaps you've not allocated things properly when you're sort of looking throughout the year. What should people do throughout the year so that they actually can use some of their paycheck and their income during the year when they need it so that they don't, then, have to rely on their tax returns as part of their emergency funds?

MONIQUE WHITE: Yeah. That's a great question. I'm no tax professional. But if you are living paycheck to paycheck, you're struggling with your monthly essentials and managing your debt, what that tells me is that every dollar counts. So it may be a good time to take a look at your W-4 and adjust your holdings so that you can have more money up front to manage those things.

RACHELLE AKUFFO: And so in terms of the people who are using their returns to pay down emergencies that might come up, how much financial pressure are they under now, say, versus in previous years now that we have sort of a better gauge of where we are? A lot of that pandemic money has also run out.

MONIQUE WHITE: Yeah. So at the end of last year, we surveyed our customers. And 65% of our customers felt like they felt more financial pressure this year than last year. And that just goes back to every dollar counting. In our recent survey, we also found that 29% of our customers will be using their tax refund specifically just for catching up.

RACHELLE AKUFFO: Goodness. Well, if there's any major takeaway that you can get from this certainly, make sure that you seek some financial advice when you get that return. Certainly don't blow it all. Use it as a chance to build some wealth. Appreciate you taking the time to join us, Monique White, Self Financial Head of Community. Thank you so much.

MONIQUE WHITE: Thank you.