There is never real fans of tax season (besides your accountant and the IRS, of course) when it happens each year. Although tax season can seem daunting, it’s a good time to assess where your money is going each year and how much it’s coming back (and hopefully a good chunk of it will come back).
If all goes well, tax season can mean for many of us having extra money in the bank; the average tax refund this year is $2,323, according to the IRS. These refunds come at a crucial time for many right now, as inflation in gas prices, living expenses and even groceries takes a toll on many households financially.
Do you have some money left over from your tax return this year? Here are some ways to maximize the few extra dollars in your tax refund.
1. Pay off the debt
If you received a tax refund this year, a great way to use it is to pay off some of your debt. Some good areas to address are credit card balances, high interest personal loans, auto loans, and student loans.
Paying off those debts using extra funds from your taxes helps you avoid pesky interest that keeps accumulating on your accounts on a monthly and sometimes daily basis. By making extra payments or completely paying off certain debts, you will also see your credit score start to rise. No longer looking at a heavy credit card statement will also be a huge weight lifted.
2. Build your emergency savings fund
Your savings are a crucial part of your finances and budget, giving you the protection you need in the event of an unexpected financial emergency. If you’ve received an expected (or better, unexpected) windfall from your tax refund, consider bolstering your emergency savings fund.
Set aside funds and put them in your savings account for a rainy day. Traditionally, an emergency savings fund houses six to nine months of living expenses in case of unexpected financial hardship, such as losing your job or unexpected medical expenses. Those six to nine months are a lofty goal, sure, but using your tax refund to kick-start or grow your savings is a smart move. In the future, you’ll be glad you did.
3. Start investing
If you haven’t started investing, using funds from your tax refund is a great way to get in the game. There are many ways to invest, from increasing your 401(k) contributions investing your money in cryptocurrency. Many online trading sites offer incentives for new investors, ranging from a low-cost entry fee to open your portfolio, to education and resources to use to learn more about the stock market and trading. trading.
If you’re looking to use your tax refund to invest, learn about the risks of each type of investment strategy. Find the best investment strategy that suits you to start or continue your investment portfolio.
4. Start your stampede
How about using your tax refund to earn more money? Invest in yourself by using your tax refund money to start or fund your side business. Spend it on the resources and tools you need to improve other sources of income. Purchase and set up your home office for your freelance work or your own business if required. Use your refund to buy professional equipment to start or improve your side business.
Invest in online sessions, trainings and other resources using your tax refund to learn as much as possible about your interests and how to turn them into a lucrative business to increase your sources of income. Using your tax refund on your side is a great way to return and multiply your money.
5. Donate to a charity or cause
A few extra dollars in your pocket can do a lot for someone else. Consider investing in someone else by supporting a cause or charity with your tax refund. Your monetary gift can help improve someone else’s life.
Start by evaluating the charities and causes you care about and give more to those causes this year. Don’t know where to put your money? Ask your family, friends or colleagues to suggest important causes to which you can contribute.
Don’t forget to take advantage of your company’s matching gift program if one is available. Employee matching gift programs usually match a certain percentage or all of your contribution to an approved charity, event or cause, which doubles the donation made to that charity. It’s a great way to give back even more, with the help of your business.
Charitable donations made this year can also go toward your itemized deductions for next year’s tax season, so use your tax refund to give back to others, and it will come back to you next year. It’s a win-win for everyone!
6. Upgrade your home
Still working around that leaky faucet? Need extra funds to complete that project around the house? Consider using your tax refund to make much-needed improvements to your home. Improving your home can increase the value of your home over time, adding to your equity and overall wealth.
Using your tax refund on your home can also have benefits for the upcoming tax season; some energy-efficient upgrades like installing solar panels in your home or replacing major appliances like your water heater could be written off as a tax credit next year. Upgrading your home to sell soon can also be used on next year’s taxes. When you sell your home, you can deduct the profits from your sale and add any renovations you made to apply to your taxes next year.
7. Treat yourself to something special
Let’s be honest: you worked so hard last year. Treat yourself to the money from your tax refund. Whether you’re late for a day at the spa, looking to travel and take a well-deserved vacation, or you’re still staring at those new shoes in your Amazon shopping cart, treat yourself to your tax refund.
Take the time to enjoy the fruits of your labor (literally!) with a little treat for yourself this tax season. Even if it doesn’t help you grow your wealth, spending refund dollars to take care of yourself is essential to your physical, emotional, and mental health. This year, set aside a few dollars of your refund to use on yourself. We know you deserve it!