5 Tips for How to Spend Your Tax Refund Wisely
A recent report by the IRS found that the average tax refund grew by nearly 14 percent in 2022. Are you looking for ways to spend your tax refund wisely? If so, check out these helpful tips below.
How Will You Spend Your Tax Refund?
1. Pay off Your Debt
The average American has over $90,000 worth of debt. This debt generally includes things like student loans, mortgages, and credit cards. If you are tired of barely making a dent in your debt with minimum monthly payments, then paying off some of it with your tax refund can be helpful. The pause on student loan payments, interest, and collections, has been extended through August 31st, 2022 so using your refund to pay down the principal can be powerful!
If you spend your tax refund to pay off debt, you can take advantage of benefits like:
- Boost your credit score
- Save money on interest
- Own your assets
- Lower your amount of monthly bills
Ideally, you want to pay off the debt with the highest interest rates first. Using this strategy can help you save the most money on future interest charges.
2. Create An Emergency Fund
Another great way to spend your tax refund is by setting up an emergency fund. You never know what curveballs life will throw at you, which is why being prepared for things like job loss or car repairs is important. Best practice is to have typically 3-6 months of living expenses set aside in a savings account for these types of unforeseen circumstances.
3. Pay Yourself First or Invest In Yourself
We all encounter different levels of stress throughout the year. Sometimes using your tax refund for a “treat yourself” moment or for extra retirement contributions can bring some relief! If so, then spending your tax refund on a new hobby is a great idea. The right idea can help you:
- Subsidize your expenses so you can contribute your earned income to a tax-deferred retirement account
- Learn a new skill
- Experience a sense of accomplishment
- Meet new people
- Reduce stress
Once you deposit your tax refund into an emergency savings account, work on growing it with regular contributions.
4. Spend Your Tax Refund On Home Improvements
Owning a home is a dream that millions of Americans have. If you spend your tax refund on the right home improvement projects, you can make your surroundings more comfortable.
Home improvement projects can also boost curb appeal levels and add value to your residence. With the help of construction professionals, getting these projects completed quickly and correctly will be a breeze.
5. Make a Charitable Donation
Charitable contributions are a great way to help those in need. At the same time, there are great tax benefits for those who give. But always remember, it’s always better to give than receive. Unsure How to Spend Your Tax Refund?
There are several ways to spend your tax refund wisely. If you need additional guidance, it’s always best to speak with a team of professional financial consultants.