Remember the good old days of stimulus checks? The pandemic stunk. We were tired of being shut up inside. Illness had cost the country dearly. Then came the stimulus checks—a rare bright light in an otherwise dim chapter in the country’s history.
But that was then, this is now. With stimulus checks off the table for 2022, we’re left without a government-issued windfall of cash–unless, of course, you’re getting a tax refund. If you’re among the 85% of Americans who expect to receive a refund, you may be licking your chops over the money that the IRS will be returning to you.
A sudden influx of cash is thrilling. Should you use it for practical purposes? Save it? Or devote it to some extravagant purchase that you’ve been dreaming of for years. After all, you can’t miss what you never had, and your tax refund may be a generous sum.
As a financial literacy coach, I am often asked about the best thing to do with tax refunds. I’ll share several options to help you make the best decision based on your financial situation and goals.
Pay Off Those Debts
It was very easy for us to incur additional debt during the last two years. US household debt increased by $1 trillion in 2021, largely thanks to the effects of the pandemic.If you were part of that number, perhaps your first step when deciding how to use your tax refund is to clear out some of the debt.
If your rent or other important bills have been falling behind, then now is the best time to speak to your landlord or bill providers to discuss new payment terms. You can spread out your repayments in manageable amounts and use your refund to help clear down the red numbers.
Fill in the Gaps
During desperate times, we often have to make difficult choices. If you became unemployed during the pandemic, you had to learn to make due with a shrinking budget.
In terms of bills, many people will put off less-pressing bills such as insurance or home maintenance in favor of things like rent. If this describes you, then my advice, first and foremost, is to use at least some of your tax refund to renew those payments. Get your medical insurance back up to date, or make any improvements around your home that can affect your health. In short, make your savings improve your life!
Replenish your Savings
If the pandemic caused you to dip into your savings to stay afloat, your tax refund can help you refill the coffers.
This was the whole point of having savings, and it’s great that it helped carry you through. But you’ll have greater peace of mind if you can top off your savings so that you’ll be ready in the event of another rainy day.
Other Investment Options
If you’re one of the lucky ones to have gotten through the pandemic with minimal loss, then your tax refund can be devoted to new opportunities. If your household expenses are well-covered , your savings untouched, and your bills all up to date, consider these options:
- A Retirement Fund – find yourself a good tax-advantaged account and seed it with your tax refund. Add to it as the years go by, and soon you’ll have a great little support for your retirement years.
- Your Children’s Education – what better way to put your money to use than to provide a better future for your son or daughter? Starting a college fund or 529 plan using your tax return will lay a solid foundation for them.
- Cryptocurrency – as you probably know, I love crypto investment. A $100 investment from your tax refund can start you on a great investment journey. Do some research into how best to invest, and you can build a portfolio that can serve you in the years to come. Just be careful of the risks and consider working with a cryptocurrency coach to build the right foundation.
- A Well-Earned Getaway – Now that the world is opening up again, why not take some time for R&R? Use your funds to take the family away to a different state or country or take to the high seas on a cruise. Revitalize yourself and prepare for the new normal.
- Improve Your Current Home – Did you start a home improvement project during the pandemic but weren’t able to finish due to lack of time, funds, or supplies? Why not use your tax refund to kick that project back into gear and improve the market value of your home to boot?
Small Steps to Indestructible Wealth
If you’re smart with your refund, you can use it to stop being a slave to debt, invest in a bright financial future, or simply improve your quality of life. Indestructible Wealth is all about smart decisions and financial discipline that allow you to enjoy a comfortable lifestyle now–not years into the future when you’re retired.