7 Smart Ways to Spend Your Tax Refund in 2022
Thinking about investing part of your tax refund? No matter the amount, it can be a struggle around figuring out the best ways for investing in your refund. You may already have some ideas on how to spend your tax refund money. It may be tempting to splurge… trust us, we get it! Receiving a tax refund deposit feels so exciting and rewarding. It can move you into buying some pretty good stuff. A large tax refund can provide you a lavish good feeling, but it is only for the short term unless you’re investing it. It’s time to think BIGGER with your tax refund. There are many ways to invest your refund money, strategically, and still have some fun spending the remainder. Deciding on the best use for your tax refund depends on your financial situation and your future goals. At Tax Incorporated, we offer tips and financial counseling to help you make a good decision for saving, investing, or spending your tax refund. Here are some ideas: Build Up Your Emergency Fund Pay Down Your Debt Boost or Open a Retirement Fund Invest in Yourself and Your Children Increase Your Credit Score Make Smart Investments Daily Increase Your Home's Resale Value Build Up Your Emergency Fund Be proactive with your tax refund. Prepare yourself with an emergency fund to manage unexpected expenses such as job loss, medical bills, etc. 62 % of Americans with savings accounts have less than $1,000 in them. Be honest with yourself about your current financial position and remember that life situations do occur after tax season. Most experts recommend setting aside enough to cover at least six months of expenses. It may sound like an unattainable goal, but with effort, you can make your savings grow to high levels. 15% of your regular income is what experts suggest you save. We suggest that you start with consistent auto deposits to your savings account. Make it as simple as possible. Deposit what you can afford, then don’t think about the money, let it grow. Pay Down Your Debt You can approach paying down your debt in one of two ways. You can start by paying down the debt with the highest interest rate first (aka the avalanche method) which can help you save money down the road in interest charges. You can also opt to pay off your lower balance debt first (aka the snowball method) so that you can cut down on the number of credit cards you have to pay off. Whichever method you decide depends on what you're comfortable with and what makes the most sense with your finances. No credit card debt? Try to pay off your car or pay down your car loan. Used car values are up by 33%. Paying off your vehicle will give you the benefit of having a solid asset. Boost or Open a Retirement Fund If you are a taxpayer, with some money in an emergency fund and aren’t living paycheck to paycheck consider using the rest of your tax refund to contribute to a traditional IRA or a Roth IRA. Your traditional IRA contribution may even be able to lower your 2022 taxable income. In 2022, you can contribute up to $20,500 to a 401(k) and $6,000 to traditional and Roth IRAs. (If you're over 50, you can contribute an extra $6,500 to your 401(k) and $1,000 to an IRA.) If you’ve got children, you can start or contribute to a Custodial Roth IRA, a custodial Brokerage account, or a 529 plan to help with their future college expenses. Invest in Yourself and Your Children If you or your children have an idea for a business, it may not be a bad idea to use that money as startup capital. You can also invest in classes, courses, or certifications to help boost your skillset and your children’s skillset. Maybe you want to invest in real estate, vending machines, purchase stock, or bitcoin for your kids - your tax refund can be used for this purpose, instead of your regular checking or savings account money. All the investment options mentioned have a high potential rate to grow substantially well into generational wealth. Most parents view their children as the most important long-term investment they will ever make in life. So, our children are our future. It's important to nurture them well with good education, and financial literacy. Teach them how to produce wealth early by always supplying them with new goals, trades, and skillsets to master. If you're only thinking about making a career move or just wanting to learn about something new for yourself, go for it! Pay it forward. Increase Your Credit Score Take your tax refund and fix your credit score. Having a great credit score builds a solid financial foundation. A better credit score allows you to take care of yourself, in the now, while supporting your future goals. The journey to financial freedom continues to get better from there. Making the choice to level up your credit score is the first step to financial freedom. Make Smart Investments Daily Have you been exploring and researching different investment options for your future and just needed some extra money to get started? Think about how you can better manage your life and expenses and find better ways to simplify. You can dedicate part of your tax refund to goods or services that can save you time, money, or a combination of the two, such as finding a meal delivery service that's cheaper than grocery shopping, freeing up your time throughout the workweek to focus on other things. Increase Your Home's Resale Value (or Add to Your Home Savings) Is there a home improvement project or repair you've been meaning to start or complete but just didn't have the funds? This may be a good time to make your home more functional while increasing its resale value. If you've been saving up to buy a home, use your refund to go towards your down payment to avoid costly private mortgage insurance payments and to also to reduce the overall amount of your mortgage. Tax Incorporated works with you all year long--not just at tax time-- to develop tax planning strategies that can lower your tax bill. In addition to tax preparation, we also provide:
Tax Relief Services
Related Articles Did you Miss the April Deadline to File and Pay Taxes? Here’s What You Need to Know… My Tax Refund Has Been Reduced ("Offset"). Why? Remember, at TaxIncorp, one of our goals is to ensure that you are equipped with the knowledge and resources so that your hard-earned money works to your benefit. If you need assistance with tax planning or need to understand what tax relief options are available to you, reach out to us and we'd be happy to go over some options with you.