About 75% of US residents receive a federal tax refund each year. Last year, the average check sent by Uncle Sam totaled $3,200.
This is a sizable pile of cash for many Americans.You and Federal Return Accepted Here are some smart ways to use your tax refund.
7 smart ways to use your tax refund
1. Increase your emergency fund
Having an emergency fund means you won’t have to pull out the plastic when the unexpected happens. This is always the case.
You’ll need to put away at least $1,000, but aim for at least 6 months of living expenses. Using your return to help you get there is a smart move that will give you peace of mind.
2. Eliminate credit card debt
With an average interest rate of 19.28%, credit card debt can be high. If you have a credit card balance, we recommend that you apply at least a portion of the refund to them.
A good strategy is to pay off the highest rate card first and make the minimum required payments on the other cards. Recommended.
use the loansnowball method It can give you the encouragement you need to make continued progress.
3. Start a side business
Perhaps you came up with a new business idea while spending time at home during the pandemic quarantine.
Maybe you’re looking to monetize your hobby. Use your refund as seed money to develop your website or set up your inventory.
4. Contribution to retirement plans
Adding to your retirement savings or starting a retirement plan is another great use of tax refunds. Check out a traditional IRA or Roth IRA to supplement your retirement savings. This year, people under the age of 50 can donate up to $6,500. If you’re over 50, you can add up to $7,500.
5. Strengthen your Health Savings Account (HAS)
if you have HSA, which allows you to set aside funds on a pre-tax basis to pay for eligible medical expenses. We recommend that you consider adding it.
Unexpected medical costs can also occur, such as a small child accidentally swallowing something. It’s best to be prepared.
6. Establish a university endowment
It’s no secret that college costs money. Currently, an average public college education is $10,423 a year for in-state students and $22,953 a year for out-of-state students. It’s not a small potato.
Therefore, we recommend using reimbursement to open a college fund account to take some of the financial stress off you. 529 plan Or work with a financial professional to explore other options.
7. Improve your home
Some home improvement projects can save you cash down the road. For example, you can replace aging appliances with energy-saving models, or add a low-ventilation entrance door to your front door.
Investing in a home is always a good idea. Because you get added value if you have to sell it. The fact that it makes you feel better is another perfectly valid reason to do so.
Now that your federal tax return has been approved, keeping these smart tips in mind will help you stay on a solid financial footing. If you can’t handle your credit card debt alone, consider a debt consolidation strategy. You can make a fresh start.
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author: Jen Robin
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