It’s that time of year! If you are one of the nearly three-quarters of the population that receives a tax refund, you might be wondering, “How can I use this to better my financial situation?” Have no fear! I have compiled a list of things you can do with your tax refund to better your overall financial health.
HSA
1. Contribute to a Health Savings Account (HSA). If you qualify for an HSA, this is great on so many levels! Contributions are tax deductible. Earnings grow tax-free. Withdrawals are tax-free if they are used for a qualified medical expense. Money in your account never expires. The list can continue, but you get the point.
Emergency Fund
2. Build your emergency fund. You guys knew I was going to say that, right? If you do not have your 3-6 months of expenses ready to go in case of an emergency, use that tax refund to get that account a bit cushier. This also works towards your goal of Sleep Well At Night. Cushier account? Less stress. Less stress? Sleep better.
Pay Down Debts
3. Pay down your debts. You knew I was going to say that, too, right? Paying down debt increases credit score (which has a lot of positive benefits!). Paying down debt gives you less stress since that burden isn’t weighing on your shoulders. Less stress? Sleep better.
Think About Retirement Accounts
4. Make your retirement account cushier. Along with building your emergency fund, also look into putting some of that tax refund into your retirement account. Or maybe starting a retirement account. The annual contribution limit for 2020 and 2021 for an IRA is $6,000 ($7,000 if you are over 50). Are you on track to maximizing that account? If not, give that account a well-deserved bump! Your future self will love you.
For the Children
5. Invest in children. Let’s say you’re on track financially and you are right where you want to be now. If the kiddos in your life don’t have a 529 or other type of college savings fund, consider opening one. If they do have one, consider adding to it. The withdrawals from this account are tax-free provided they are used for a qualifying educational expense. Their future selves will love you!
Home Improvements
6. Finally replacing those windows that leak out precious A/C or heat can lead to dramatic improvements on your bills! Win-win. You have prettier windows and a lower bill. The same goes for old appliances as well.
You’re Worth It
7. Invest in yourself. This can be taken in so many ways. Do you want to take some courses to continue learning or to earn that promotion? Do you want to start your own business? Need a relaxing spa day with a massage and a mimosa? Or maybe an overnight vacation away from the little ones?
Insurance
8. If you are relatively young, in good health, and have people counting on your income, life insurance probably won’t cost too much. But the peace of mind of knowing that your loved ones are taken care of should the unthinkable happen is priceless. Also consider other insurance you have. When was the last time you looked over your policies? Do you now need more coverage in an area?
The average tax return in over $3,100. How could you use that money to invest in yourself? How can you invest in yourself today that will pay off BIG time in the future? 5 years, 10 years, 20 years down the road?
