There are never any real fans of tax season (besides your accountant and the IRS, of course) when it rolls around each year. Although tax season can feel daunting, it’s a good time to gauge where your money is going each year and how much of it is coming back (and hopefully, a good chunk will come back).
If all goes well, tax season can mean getting some extra money in the bank for many of us; the average tax refund this year is $2,323, according to the IRS. These refunds come at a crucial time for many right now, as inflation in gas prices, living expenses, and even groceries are stretching many homes financially.
Have a little money left over from your tax return this year? Here are a few ways you can maximize the extra few dollars from your tax refund.
1. Pay down debt
If you received a tax refund this year, a great way to use it is to pay down some of your debt. Some good areas to tackle are credit card balances, personal loans with high interest rates, car loans, and student loans.
Paying down these debts using the extra funds from your taxes helps you avoid the pesky interest that continues to accrue on your accounts on a monthly and sometimes daily basis. By making extra payments or paying off some debt completely, you’ll also see your credit score start to rise. No longer staring at a hefty credit card statement will be a huge weight lifted, too.
2. Build up your emergency savings fund
Your savings is a crucial part of your finances and budget, giving you the cushion you need for unexpected financial emergencies. If you received an expected (or even better, unexpected) windfall from your tax refund, consider beefing up your emergency savings fund.
Set aside some funds and put it into your savings account for a rainy day. Traditionally, an emergency savings fund houses six to nine months of living expenses in case of an unexpected financial difficulty, like losing your job or unforeseen medical fees. That six to nine months is a lofty goal, of course, but using your tax refund to get started or boost the savings you do have is smart choice. Future you will be glad you did.
3. Begin investing
If you haven’t started investing, using the funds from your tax refund is a great way to get in the game. There are so many ways to invest, from increasing your 401(k) contributions to putting your money in cryptocurrency. Many online trading sites offer first-time investors incentives, from a low-cost entry fee in order to open up your portfolio to education and resources to use to learn more about the stock market and trading.
If you’re looking to use your tax refund to invest, educate yourself on the risks of each type of investing strategy. Find the best investment strategy that works for you to start or continue your investment portfolio.
Source: Color Joy Stock
4. Start your side hustle
How about using your tax refund to make more money? Invest in yourself by using your tax refund money to start or fund your side hustle. Spend it on the resources and tools you need to enhance other streams of revenue. Purchase and set up your home office for your freelance gig or your own business if it requires it. Use your refund to buy professional equipment to kickstart or enhance your side hustle.
Invest in online sessions, trainings, and other resources using your tax refund to learn as much as you can about your interests and how to turn them into a lucrative business to increase your streams of income. Using your tax refund on your side hustle is a great way to flip and multiply your money.
5. Donate to a charity or cause
A few extra dollars in your pocket can go a long way for someone else. Consider investing in someone else by supporting a cause or charity with your tax refund. Your monetary donation can help improve someone else’s life.
Start with assessing charities and causes that are close to you and giving more to those causes this year. Not sure where to put your money? Ask family, friends, or coworkers to suggest some important causes you can contribute to.
Don’t forget to take advantage of your company’s gift matching program if they have one available. Employee gift matching programs typically match a certain percentage or all of your contribution to an approved charity, event, or cause, which doubles the donation made to that charity. It’s a great way to give back even more, with the help of your company.
Charitable donations made this year can also go toward your itemized deductions for next year’s tax season, so use your tax refund to give back to others, and it will come right back to you next year. It’s a win-win for everyone!
6. Improve your home
Still working around that leaky faucet? Need extra funds to finish that project around the house? Consider using your tax refund to make much-needed improvements to your home. Improving your home can increase your home’s value over time, adding to your equity and your overall wealth.
Using your tax refund on your home can have benefits for next tax season too; some energy-efficient home improvements like installing solar panels to your home or replacing major appliances like your water heater could be written off as a tax credit next year. Improving your home to sell it soon can also be used on next year’s taxes. When you sell your home, you are able to write off the profits from your sale and add the renovations you made as well to apply to your taxes next year.
7. Treat yourself to something special
Let’s be honest: You worked so hard last year. Treat yourself a little with the money back from your tax refund. Whether you’re overdue for a spa day, looking to travel and take a much-needed vacation, or still eyeing those new shoes in your Amazon shopping cart, splurge a little on yourself with your tax refund.
Take time to enjoy the fruits of your labor (literally!) with a little treat for yourself this tax season. Even if it doesn’t help grow your wealth, spending some refund dollars on self-care is essential to your physical, emotional, and mental health. This year, budget out a few dollars from your refund to use on yourself. We know you deserve it!