Your tax refund has hit your bank account, and you’re uncertain about what to do with this money. You have so many options, but you don’t know what the right move is for your situation.
The truth is that there’s no such thing as a one-size-fits-all solution when it comes to money management. According to the IRS, the average tax refund for 2023 was $2,753 as of April 21. While this figure is down about 10% from the average refund from last year, it’s still a significant amount of money.
With the rising cost of all expenses across the board and plenty of concerns over a pending recession, it’s clear that the tax refund is critical to the financial health of many Americans. According to a GOBankingRates survey ahead of Tax Day, nearly half of people expecting refunds planned to use the money to pay bills or debt, and about 30% were going to put it in savings.
Start Investing in the Stock Market
Have you started investing your money yet? Just 9% of people expecting refunds planned to invest it, but you can get decent returns doing that.
The good news is that you don’t have to study stock charts or worry about risking your money if you want to invest funds in the stock market. You can start by investing in the popular Vanguard S&P 500 ETF (VOO). This fund invests in the biggest companies like Apple and Microsoft so you don’t have to stress about picking out individual stocks.
Start with basic investments like index funds so you don’t have to stress about trying to time the market. Watch out for risky investments such as cryptocurrencies or penny stocks that promise you high returns.
Billionaires vs. the Middle Class: Who Pays More in Taxes?
Pay Down Your Debt
Do you have any debt? If you have any credit card debt or student loan payments, you can use the money to make a dent on this debt — as about 20% of survey respondents planned to do.
Consider making a significant payment on your highest-interest debt since credit card interest rates are fairly high right now. You want to start paying down this debt so you can focus on investing in your future.
There are many different strategies out there for paying down debt, from paying off the lowest balance first to focusing on the high-interest payments. All that matters is that you make a decision and start paying down your debt.
Invest in Yourself
If you have a decent chunk of change sitting around, you can take this money and invest it in a course or program that will allow you to upgrade your skills.
What are the benefits of investing in yourself?
- The more you learn, the more you earn.
- By upgrading your skills, you can get a job promotion or land a new job.
- You’re using your money to make more money.
What are other ways that you can invest in yourself?
- Buy a book on a topic you would like to learn more about.
- Attend an industry event to make connections in your field.
- Work on a certification that will allow you to start a side hustle (personal training is a common example).
Put More Money Into Your Emergency Fund
Have you contributed to your emergency fund lately? Many financial experts suggest saving money for a rainy day because you never know what can happen. As we’ve all seen over the last few years, it definitely helps to have some money set aside to handle life’s unexpected expenses.
You also could leave this money in a high-yield savings account since interest rates are fairly high at the moment. This would allow you to earn interest on your funds while you have the financial security of knowing that you could cover an unexpected expense.
Contribute to Your Retirement Accounts
Have you started saving for retirement yet? You could use a portion of your refund to fund your retirement. Use compound interest so you can live more comfortably in your golden years. Every dollar you invest into your retirement today will benefit you greatly in the future.
You can use your tax refund to allocate some funds to an individual retirement account (IRA) through an online brokerage. Contributing to an IRA will provide you with a tax reduction while you plan for your retirement. Those in lower tax brackets can contribute to Roth IRAs instead. Either way, it’s a good idea to contribute a portion of your tax refund to your retirement accounts.
How Do You Stop Procrastinating?
If you’ve been sitting on your tax refund for a few months and still aren’t sure how to use it, then it’s important that you make a decision soon. The best way to stop procrastinating is to open up your own accounts as soon as possible so you can start funding them. You don’t want to miss out on opportunities to earn interest on your money because you were too indecisive.
If you’re torn about what to do with your refund, it always helps to start by tackling your highest-interest debt to improve your credit and give yourself a sense of security.
What Will You Do With Your Tax Refund?
We’re not here to suggest that you can’t use any of the funds to treat yourself to a fancy dinner or some treat that you’ve been thinking about. We just wanted to share five smart moves if your tax refund is still in your bank account. The good news is that you have plenty of options to improve your financial situation.
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