Tips on how to use your tax refund wisely. (Photo: CBS News)
A certified financial planner, Jason Silverberg, said that when people receive a tax refund, they often think of it as “free money” to spend and do whatever they want. However, Jason and other experts offer these suggestions on using your tax refund.
1. Create an Emergency Fund With a Promo
“Putting your tax refund in a savings account, money market account, or even a short-term CD could help you cover any unforeseen expenses,” Silverberg suggests. Furthermore, any bank will offer promotional deals to help you in using your tax refund.
2. Pay Off High-Interest Debt and Invest Any Extra Money
Wan McCormick, a certified financial planner, mentioned that the benefits of debt repayment could quickly add up.
3. Retirement Contributions should be Increased.
Financial planners recommend a two-step approach to tax refunds. First, make the refund as small as possible. Second, instead of lending that extra money, invest it. Certified financial planner Doug Bellfy recommends reducing your tax refund as much as possible.
4. Create a Roth IRA.
Even if you have a workplace retirement account, consider using your tax refund as seed money to start an IRA. Contribute enough to your company 401k to maximize the match if your employer matches your contributions.
5. Use CDs to Save
Certificates of Deposit allow you to earn interest on deposits made at financial institutions. CDs, unlike savings accounts, require you to lock in your deposit for a specific period. Moreover, CDs provide a guaranteed rate of return.
READ ALSO: Tax Refund 2023: Here’s How to Track Your Refund
Tips on how to use your tax refund wisely. (Photo: CNBC)
6. Purchase Index Funds
Michael Schupak, a certified financial planner with Astra Wealth Partners, said a tax refund could be an excellent accidental savings tool for those who might otherwise struggle to save money for long-term goals.
7. Begin a Business
A $2,000 tax refund will not cover the cost of opening a new McDonald’s or other big-brand franchise, but it can provide the financial fertilizer needed to start a small business.
8. Create a Website
Consider using your tax refund to launch a business-specific website and reach more potential customers if you already own a business.
9. Return to School
Investing in yourself is a wise — and cost-effective — way in using your tax refund.
10. Begin a 529 Plan
Consider using your refund to open a 529 plan, which, like an IRA, allows your investment earnings to grow tax-free until you use the account to pay for approved higher education expenses for your children.
11. Improvements to the Home
Specific home improvements pay for themselves and then some. Adding insulation and sealing air leaks can reduce heating and cooling costs by 15% on average.
12. Pay in Full for Upgraded Insurance
For an average annual cost of $380, an umbrella liability policy can provide $1 million to $2 million in additional coverage over a typical home or auto policy. Many insurance companies offer discounts to customers who pay their premiums in advance.
13. Apply for Side Jobs
The great thing about today’s gig economy is that there are many more opportunities to earn a little extra money on your terms.
14. Consider Peer-to-Peer Lending.
Peer-to-peer lending companies such as Lending Club and Prosper can provide cash to consumers looking for alternatives to traditional financial institutions’ loans or lower interest rates than many credit cards.
15. Invest in Hunting Equipment
Changing jobs could be a good strategy to make more money. Use your tax refund to upgrade your subscriptions, such as a LinkedIn Premium Career account, or to revamp your resume with the help of a professional resume-writing service.
READ ALSO: Direct Deposit – Best Way to Receive Tax Refund This 2023 According to IRS – See How
