Ways to Use Your Tax Refund to Improve Finances
As tax season comes to an end, many people anticipate receiving a tax refund. While it might be tempting to use the money on a shopping spree or vacation, using it to improve your finances will have a lasting impact. Here are some ways you can use your tax refund to improve your finances and some vital information you need to know about this year’s tax returns.
How Can I Use My Tax Refund to Improve My Finances?
#1: Pay Off High-Interest Debt
Debt of any kind can stand in the way of your financial freedom, particularly when you’re approaching retirement age. Paying off high-interest debt, such as credit card debt, is one of the best things you can do for your finances. Not only will it help you save on interest, but it will also free up more of your income to put towards savings or investments. Consider speaking with a financial professional to determine the best debt payment strategy for your situation.
#2: Build Your Emergency Fund
Having an emergency fund is essential for anyone looking to improve their finances. According to a poll reported by Yahoo, over 30% of Americans say their top priority is building their emergency fund in 2023. While it can be challenging to save money, particularly during times of high inflation, having emergency savings on hand can provide you with a cushion in the event of an unexpected expense. If you need more than your tax refund to help you reach your goal, consider setting up a direct deposit from your paycheck to a dedicated savings account.
#3: Knock Out Your To-Do List
Whether it’s home repairs or upgrades, there are always items on our to-do list that we’ve been putting off. Consider using your tax refund to check off some of those items. Not only will you feel a sense of accomplishment, but you’ll also be improving the value of your home.
#4: Look to the Future
Lastly, use your tax refund as an opportunity to evaluate your retirement savings. Consider meeting with a financial professional to review your current retirement plan and make any necessary adjustments. Investing your refund in a retirement account like an IRA or annuity can also help you achieve your retirement goals.
What People Need to Know About 2022’s Tax Refund
While many people look forward to receiving a tax refund, it’s essential to be aware of some changes that may affect the amount you receive this year. Here are some things you need to know:
Anticipate a Smaller Refund
This year, taxpayers should anticipate receiving a smaller refund. This is because there were no stimulus payments in 2022, and some tax credits have reverted to their pre-COVID amounts. While this may be disappointing, it’s important to remember that any amount received is still money you can use to improve your finances.
Try to Prevent Giving the Government an Interest-Free Loan
While receiving a tax refund may seem like a bonus, you also gave the government an interest-free loan throughout the year. Instead, consider adjusting your withholding to keep more of your money throughout the year. This will leave you with more money to put towards savings or investments.
Use the IRS Calculator
The IRS has a calculator to help you determine your withholding. Using this tool can help ensure that your refund is as close to zero as possible, leaving you with more money in your pocket throughout the year. Use the calculator by clicking HERE.
At the end of the day, using your tax refund to improve your finances is a smart financial move. Consider using it to pay off debt, build your emergency fund, knock out items on your to-do list, or invest in retirement. While the amount you receive may be smaller this year, adjusting your withholding and putting more money in your pocket year-round can help you achieve your financial goals. Got questions on which actions are best for you? Book an appointment with Dewitt and Dunn to get access to a highly experienced financial consultant who can guide you on this journey.