7 Smart Ways to Use Your Tax Refund – Even though a refund is a return of your money that was overpaid, receiving a tax refund feels like a celebratory bonus. While there’s an instinctual impulse to quickly spend it on superfluous luxuries, there may be a better use for the financial return. For more details, read 6 Wise Ways to Use Your Tax Refund, here.
These 7 smart ways to use your tax refund may not reap instant gratification, but rather better serve your financial and personal goals in the long run.
- Pay Down Credit Card Balances: Carrying a balance on your credit card? Use your tax refund to pay down debt, especially if you’re paying compound interest. Confirm with your credit card company, but typically any payment above the minimum due is applied to the balance, thereby potentially reducing the total number of payments.
- Build your Emergency Reserves: Though three months is standard, the pandemic illustrated the importance of having an extra month or two of monthly expenses in reserves. If necessary, designate a separate account for accessible funds that are available when needed yet relatively out of sight, out of mind.
- Invest in Education: Whether you’re investing in your child’s future education or your own, higher education can increase salary potential. Likewise, some college savings programs generate their own tax benefits thereby further maximizing your tax refund.
- Invest in your Future: Need capital to start your own business? Ready to expand your current company? Utilizing your tax refund for business growth might elevate future income and returns.
- Improve your Home Value: Will home improvements increase functionality or life quality for you and your family? Will improvements increase your home value and potential sale price? Utilizing your refund for renovations may pay off in both emotional and financial gains.
- Contribute to Retirement Funds: It’s never too early to begin saving for retirement, and it’s never too late to begin diversifying an existing retirement portfolio. Applying your tax refund to retirement accounts can help you reach maximum annual contribution allowances.
- Contribute to Charity: Donating to causes important to you is rewarding in and of itself, but, in many cases, that donation earns tax benefits as well. Structuring your tax refund donation appropriately has the potential to maximize your ability to continue supporting these essential organizations.
Do you have questions?
Not certain which of these seven are best for your financial and personal goals? Unclear on the differences between a Roth or Traditional Individual Retirement Account (IRA)? Ready to empower your financial confidence?
Contact Crescent Wealth Partners to schedule a time to discuss your financial blueprint to map where you are today to where you want to be in the future.
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