Filling taxes may be stressful, but for could lead to exciting compensation in the form of a tax refund. With this year’s tax season expected to yield higher returns, spending your money on quick rewards may be tempting. Treating yourself to a nice dinner might sound good, but consider delaying gratification a bit longer. Investing your tax refund in one of these six options may generate better results in the long run and hopefully more nice dinners.
6 Ways to Spend this Year’s Tax Refund
1. Increase Your Savings Account
This may seem like a no-brainer, but immediately transferring your tax refund to your savings account can set you on the right path to a secure financial future. You never know when emergencies may shake up your financial stability, so having a little fund to cushion the blow is a great idea.
2. Pay Off Credit Card Debt
Debt is detrimental to your finances and overall peace of mind. Using your tax refund to pay off your debt, even if it makes a small dent, is a smart move towards securing your debt-free future. Credit cards tend to have high-interest rates, so the faster you pay them off, the more money you’ll save. Additionally, extensive credit card debt can hurt your credit score which can affect future credit and loan applications.
3. Pay-Off Student Loans
Just like credit card debt, student loan interest adds up over time. Although the pause on student loan repayment, interest, and collections has been extended through August 31, 2022, due to the COVID-19 pandemic, it is better to pay them off as soon as you can before interest starts to add up again.
Your 2021 tax refund offers the perfect opportunity to buy stocks, bonds, or retirement plans. The benefits of investing tend to outweigh the risks, allowing you to stay ahead of inflation and accumulate wealth over time. If fluctuations in the economy and stock market initially deter you from investing, you can opt for a low-risk option like purchasing an exchange-traded fund or index fund.
5. Renovate Your Home
Have you been putting off that kitchen renovation? Using your tax refund towards improving your home is a great investment, especially if these improvements are going to save you money like installing energy-efficient windows or solar panels. If you’re lucky, you might even be able to claim the residential energy-efficient property credit next tax season.
6. Take that Vacation
This may not sound like a smart idea but putting your tax refund towards a well-deserved break is a valid option that can improve your overall quality of life and mental health. The stress and uncertainty of the past couple of years have taken a toll on everyone, so if you are not in immediate financial distress, don’t overlook your mental wellbeing and put that refund towards a relaxing getaway.
Not sure what to do with your tax refund? Learn how our financial planning services can help you! Contact Satty, Levine & Ciacco, CPAs, P.C. to get started.