Are you trying to figure out smart ways to use tax refund this year?
There is no doubt that this year has been a tough one for a lot of people. The health crisis affected many Americans who lost their jobs at the height of the pandemic. Several businesses had to scale down operations. This in turn led to several workers out of a job and trying to rely on savings to make ends meet.
This is the reason why getting a tax refund seems like a much-needed shot in the arm for a lot of people. Though GAO shares that the IRS, at one point, was working at a limited capacity to protect its employees from the virus. Much like the stimulus checks that were given out by the government, refund checks from your tax payments can come in handy. At times when income is hard to come by, this can be the difference between getting back on track or going deeper in the red.
Once you get your check, you need to figure out some of the smart ways to use tax refund. Of course, you might think that this is money you worked hard on and you can spend it however you want. That is true, it is yours and you worked hard to get that money. But it is also the reason why you need to be smart with your finances. Do you want to lose the money you worked hard to get?
It is still up to you how you use your money. But if you want to make the most of it, here are a few ideas you can keep in mind.
Set it aside for emergencies
The IRS shares that the average tax refund for 2021 is about $2,873. This amount can be a big help when you are already having a difficult time making ends meet. One of the smart ways to use tax refund when you get it is to set it aside. Fight off the impulse to immediately use the money to buy the things you want.
One of the reasons why the health crisis was challenging for a lot of people is due to the lack of an emergency fund. It was the one account that people focused on during the height of the health crisis. Its absence meant taking money out from funds meant to be used in the future. It can be from a retirement account or from an investment.
What you need to realize is that these decisions to take out funds from somewhere else could have negative effects. It could be an early withdrawal penalty with your 401k or losing a good chunk of your investment capital when you pulled them out while the market is down. This is one of the reasons why setting money aside for rainy days matters.
One of the smart ways to use tax refund is to manage debt
If you are already back at work and have access to regular income, you can think about using your tax refund to pay down some of your debts. It would be a good idea if you can focus on your high-interest debt payments as well. Normally, these are your credit card payments or payday loans if you took some out in the past few months.
The reason why you should consider paying down these accounts is because you could save some serious money in the process. Rather than paying huge interest and fees to your lender, you can save that money if you pay your accounts off. It also lightens your burden and gives you the chance to manage financial stress better.
If you are still not out of the woods yet and still looking for a stable source of income, it helps to prioritize which to pay first. This way, you do not use everything up all in one go. As you do this, you ensure that you are able to set aside an amount you can use in the coming weeks or months. This depends now on how fast you can get your income back up.
Invest in your health
If there is one lesson that the pandemic taught people, it is to value your health. The health crisis swept through the nation and the entire world putting a lot of people at risk especially those that have pre-existing conditions. This is one of the biggest reasons why you need to invest and prioritize your health.
One of the smart ways to use tax refund this year is to put some of that towards investing in your health. There are a lot of things you might want to do to help you get ahead and take better control of your body. To start off, you can choose to get a comprehensive general check-up to help give you an idea of what you need to work on.
Nutrition plays a crucial role in taking care of your body so you might want to budget a little more in making sure you eat a balanced diet. Exercise also helps but since gyms are not yet fully opened, you can try buying what you need to exercise at home. Your mental health is also important so take a look at your hobbies and explore how you can make time for them. You can even turn these into income-positive hobbies so you can get extra income.
It is also a good idea to put some money into maintaining your house. This comes with several benefits just like helping you save money in the future. When you get ahead of potentially expensive repairs, you have lower chances of having to hire contractors for big repair jobs in the future. This one can help you save huge amounts of money.
Taking on repairs or even simple upkeep like painting the walls, power washing your garage, or replacing beaten-down doors can help bring up the market value of your house. If you choose to sell and move to a new house, this will be a great move. An increase in the market value of your home means you can sell at a higher price.
If you are planning to stay for a much longer time, the repairs and improvements are a great way to help keep you comfortable at home. You can also choose to invest in energy-efficient appliances around the home. Or, simply replace really old appliances so you can enjoy lower energy payments every month. This will help you budget better in the long run.
One of the smart ways to use tax refund this year is to improve a skill. This will be most helpful when you are trying to get a promotion at work. If you want to focus on a side hustle, learning a new skill can also come in handy. This can open a lot of doors for you when it comes to earning opportunities. It is a good idea to look at what industries are in demand at the moment and focus on that. It also helps if you can focus on a skill you have an interest in. This makes learning a new skill a lot more fun.
Looking for smart ways to use tax refund is challenging especially when you are trying hard to make ends meet. But there are a few things to look into to help you make sure you make the most of your refund money.