It’s that time of year again where you either owe Uncle Sam or Uncle Sam owes you. Hopefully, you’re in the latter group. We all have experienced how needlessly complicated filing your taxes can be. Thankfully, taxpayers can go directly to the IRS, utilize tax preparation software, or hire a professional to file your taxes. If you’re expecting a tax refund, it’s smart to use it to better your financial situation. Here are 5 money moves to make with your tax refund.
1. Pay Off Debt
Debt has gotten very expensive over the last 12 months. The average 30-year mortgage rate as of April 7, 2023 is 7% while the average credit card interest rate is 19%. With the Federal reserve proposing further Fed rate hikes, it’s safe to assume that interest rates on credit will continue to rise. We know that the longer your debt is outstanding, the more you end up paying for it. Therefore, to pay less on your debt over the long run, a smart money move would be to pay off your debts with your tax refund.
2. Start An Emergency Fund
Recently, every week for several weeks there have been many industry leading companies announcing lay-offs of thousands of employees. The latest being the technology behemoth, Apple. While companies of a certain size are required to send notification of lay-offs, smaller companies are not. If you work for the latter, you could suddenly find yourself without employment for an unknown amount of time. One of the best money moves to make with your tax refund is to use it to start an emergency fund. An emergency fund is a staple for anyone who wants to master sound financial management.
3. Boost Your Retirement
Americans are estimated to need more than $1M to retire comfortably. Currently, less than half of millennial workers are expected to save that amount by retirement [Yahoo Finance]. The smart way to save for retirement is to start early and frequently increase your contributions as you get older. Putting your tax refund into a retirement account today will allow you to 1) take advantage of lower stock prices and 2) enjoy watching your money grow by taking advantage of compound interest for the next 10 – 30 years.
Learn more about saving for retirement [HERE]!
Investing is a sure way to increase your wealth over the long term if done wisely. Don’t let the recent market performance deter you from investing as frequently as you can for as much as you can. Take the S&P 500 index for example. Over the past 12 months, the S&P 500 is down 8.62%. However, over the past 5 years it is up over 54%. Investing is one of the smartest money moves to make with your tax refund is to take advantage of the current market prices and invest.
Learn the basics of investing [HERE].
I have always been a proponent of upskilling. It makes you more marketable in this competitive labor market. You’d be surprised at the impact an extra skill or certificate can have on your earning potential over your lifetime. For example, accountants with a CPA can earn 10% – 15% more than their non-CPA counterparts annually [NASBA].
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