• A tax refund isn’t money that comes along every day.
• If the IRS is paying you a lump sum, here’s how to use it to shore up your finances.
It’s easy to argue that a tax refund isn’t something to celebrate. After all, it means you overpaid your taxes the previous year and are now getting the money you were entitled to all along. But if you have an IRS payday coming your way, it pays to make the most of it. Here’s how.
1. Build or boost your emergency fund
Having a solid emergency fund should be your primary financial goal. If you don’t have enough money in your savings account to cover three to six months of essential expenses, use your refund to get closer to that mark.
2. Pay off a credit card balance
The longer your credit card balance lingers, the more interest you might accrue on it. Also, too much credit card debt could damage your credit score. It pays to use some or all of your tax refund to whittle down your existing balance.
3. Chip away at a personal loan
If you don’t have credit card debt hanging over your head but owe money on a personal loan, your tax refund might help you shrink your balance and accelerate your payoff. The result? Less interest and stress for you.
4. Fund your retirement plan
Building a retirement nest egg is something you should aim to do throughout your career. If your employer offers a 401(k), you can deposit your refund into your checking account and then instruct your employer to deduct that much more from your paychecks. And if you have an IRA, you can use your refund to contribute.
5. Get a better car
If you drive to work, you need a reliable vehicle. If yours has seen better days, your tax refund could serve as a nice down payment on a replacement vehicle.
6. Fix up your home
That leaky roof you’ve been ignoring for weeks? It may need your attention. The more you put off home repairs, the more damage might ensue. If there’s a glaring issue with your home, it pays to use your tax refund to tackle it before it gets worse.
7. Invest in a remote workspace
Some people can’t wait to get back to the office. But if you think you’ll be working remotely permanently, it pays to invest in a comfortable setup for your home. Your tax refund could be your ticket to a new desk, chair, or computer.
8. Treat yourself to something special if you’re on target to meet your financial goals
Maybe you have a fully-loaded emergency fund and no debt other than a mortgage. You might also be making great progress with retirement savings, have a newer car, and have a home that’s in good shape with a recently updated office to boot. If that’s the case, then you should feel free to spend your tax refund on something that will make you happy, benefit your health, or improve your quality of life. That could mean buying equipment for a home gym, taking a much-needed vacation, or upgrading your wardrobe. Just because you have a tax refund coming your way this year doesn’t mean that’ll happen every year. Be sure to maximize your 2022 refund so it serves you well on a long-term basis.