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A tax refund is not just money — it’s a fresh chance to alter your finances.
Key points
- Making a plan for your tax refund is the best way to make sure it doesn’t slip through your fingers.
- It’s possible to use a tax refund to enhance your future.
Whether you’re expecting your “usual” tax refund this year or have a sneaking suspicion that it will be larger than usual, it’s good to have a plan. Without a plan for using the funds, it’s easy to let the money slip through your fingers. Here, we offer eight ideas for ways to make the money work for you.
1. Shore up your emergency fund
Last summer, nearly 40% of people who had an emergency savings account said they’d dipped into those funds during the COVID-19 pandemic. And according to a YouGov survey, 73.3% spent half or more of their savings to get by.
If you’re one of the millions of Americans who could not pull money from emergency savings to cover medical expenses or repair a busted radiator, this is your chance to turn things around. Sure, it would be more fun to spend the money on a weekend getaway, but it’s possible you’ll find it more satisfying to have an emergency fund.
Read more: What Is an Emergency Fund and Why Do You Need One?
2. Contribute to retirement
If we live long enough, we’re all going to reach retirement age. Why not get the jump on retirement by investing your tax refund? Whether you already have a growing retirement account or have not begun to save, the benefits of compound interest cannot be overstated. For example, let’s say you’re 35 years old and receive a $3,000 tax refund this year. You put it in an investment account with an average annual return of 7%, and don’t touch it until you’re 70. This year’s $3,000 refund will be worth more than $32,000 by the time you need it, even if you never add another cent to the account.
3. Fund self-care
The last couple of years have been challenging for many, emotionally and physically. According to the Kaiser Family Foundation (KFF), about 4 in 10 U.S. adults have reported symptoms of anxiety or depression since the beginning of the pandemic. That’s up from 1 in 10 between January and June 2019. KFF also reports that 12% of Americans say their chronic health conditions have …….