What Should I do with my Tax Return?
It’s that time of year again, taxes are due and extra cash flow from your tax refunds will hit your account. Instead of getting overly excited about the extra money hitting your account, this is a perfect time to use this money wisely to set yourself up for financial success during this tax season. Here are a few ways you can use your tax refund this year.
Create an Emergency Fund
In case of sudden financial needs, such as job loss, medical emergency, home or car repairs, etc. Instead of seeking out short-term loans or carrying over your credit card balance into the next month, paying high interest, you could use your refund to start or increase your emergency fund. An emergency fund allows you to breathe easy in the case of major, unexpected costs.
Send it to Savings
When receiving your tax refund the IRS allows you to split up your refund in up to three accounts via direct deposit. This is an opportunity to send the full or just a portion of your refund to a savings account that’s inconvenient for you to access.
Keeping it in a hard to access savings account insures that the money will stay out of sight, out of mind until it is really needed. Extra money can burn a hole in your wallet; stashing your refund into your savings account keeps that money safe from impulse buys.
Pay Off Debt
If you are carrying credit card debt, student loans, home mortgage, car payment, etc. use your tax refund to make a larger payment. Putting your tax refund towards paying off your debt can save you money on interest.
Using your refund to pay the highest interest rate loan would be the most beneficial. Paying off credit card debt saves you from interest rates that are not tax deductible. An influx of cash to help pay off existing debt balances also allows you to focus on other financial goals for the next few months.
Fund your Retirement
Another way to use your tax refund is contributing that money to start or increase a 401(k), Roth or traditional IRA, or saving more money for your retirement. In 2022, you can contribute up to $20,500 to a 401(k) and $6,000 to a traditional and Roth IRA. This is also a great time to evaluate your retirement funds.
Reevaluate what you are contributing right now and if you can contribute more moving forward. And if you cannot contribute more at the moment, use your tax refund to boost your retirement fund.
Look to the Future & Start Saving for College
You’re not the only one who needs to prepare for the future. If you want to have children, investing this extra money into a fund for when you have children to cover hospital bills or all of the baby necessities, such as a crib and stroller. If you already have children, you can use this influx of money to put toward their schooling. Setting up a 529 plan can help you afford the education costs in your children’s future.
Overall, there are many ways to use your tax refund, these are just a few suggestions to increase your financial security for the future. If you need help deciding the best way to save or invest your tax refund, contact Voyage FCU today. Visit our website or call us at (605)338-2533.