Ready or not, tax season is here. This year, American taxpayers must be sure to file by Monday, April 18. Now, filing taxes may not necessarily be your idea of a good time. But one thing can make it all feel worth it: the potential of getting a tax refund.
Whether your refund is big or small, you’ll have to make a decision on how you want to use that money. Should you spend it, save it, invest it, or something else?
Here are a few ideas to help you decide how to use your tax refund this year.
1. Contribute to Your Emergency Fund
If you don’t have an emergency fund, you’re not alone. According to a Bankrate survey
in early 2022, more than half of Americans (56%) wouldn’t be able to cover a $1,000 emergency expense.
But emergency funds, or “peace of mind” accounts, as we like to call them, are essential to having a healthy financial life. Think about all the unexpected expenses that can arise -- anything from a broken-down car to a PCS move. As we know, PCS moves are never cheap. Having a little bit of extra money saved can make a big difference when it comes to life’s surprises.
If you don’t have an emergency fund yet, don’t be ashamed -- it’s never too late to start one. And using some of your tax refund for this purpose could be the perfect way to get started. Even if you choose not to use the entire amount of your refund for your emergency fund, starting small is better than not starting at all.
Once your emergency fund is established, consider contributing a bit to your fund each month. Your motivation, confidence, and peace of mind will grow along with your emergency fund balance.
2. Save With the Future in Mind
Putting money into your emergency fund isn’t the only way you can save for the future with your tax refund. Consider making additional contributions to your retirement account if you’re able.
Saving for the future is so important, but contributing to your emergency fund isn’t the only way your tax refund can help you prepare. For example, what are you saving for right now? Whether you’re putting money in your Thrift Savings Plan (TSP) retirement account, saving for a down payment on a house, or saving for something else. Using some money from your tax refund is a great way to give these accounts a boost.
Here’s another way you can invest in the future -- your children's future. You could direct some of your tax refund into an education savings account for your child or children. If you haven’t already, you can set up a 529 plan that can help your children pay for higher education and associated expenses. And remember, if your first child doesn’t use all the money in the account, it can be transferred to another child.
3. Tackle Debt
Debt often feels like a heavy weight on our shoulders, especially when we’re working hard to build a financially healthy future. But the truth is that most people have debt -- according to CNBC
, the average American has $90,460 in debt. Whether it’s credit card debt, auto loans, student loans, mortgage loans, personal loans, or something else.
Using your tax refund to help pay off some of your debt may feel like a small step, but it can help you get on the right track. There are a couple of different debt repayment strategies, so think about which one makes more sense for you: the snowball method and the avalanche method.
With the snowball method, you pay off your smaller debts first to help build confidence and motivation in the debt repayment process. With the avalanche method, you pay debts with the highest interest rate first. Either way, your tax return can help you make a dent in your debt.
4. Have Some Fun
It’s no secret that the past two years have been stressful: personally and financially. So if you find yourself with some extra funds thanks to your tax return, it’s ok to think about spending it on you and your family. Some of the things we enjoyed most in life were put on hold. If there’s a way you can spend your tax return to make life more pleasant, it’s worth it.
Whether that’s a weekend getaway, a spa day, a cooking class, or something else … using your tax refund in this way can do wonders for your mental and emotional wellbeing. And that’s important, too.
5. Start Building Your Credit with a Credit Builder Credit Card
isn’t always easy to understand. Not only is a credit score a conglomeration of different factors
, but it can impact you in a variety of ways. If your credit score isn’t high enough, you may have a hard time getting approved for a mortgage or auto loan. But there are other situations in which you may be asked for your credit score. For example, it may be considered when you apply for car or home insurance, or even when you apply for a new job.
Are you looking to build or establish credit? If so, it could be a good idea to use your tax refund as the deposit needed for a new secured credit card. Because secured credit cards are backed by a cash deposit, they can then be used if you default on your payment. And this means it’s less risky for you. With a secured credit card, making your everyday purchases and paying in full by the due date can help boost your score.
Armed Forces Bank Is Committed to Your Financial Goals
No matter what your financial goals are, Armed Forces Bank is working hard to help you achieve them. If you’re looking for a partner in your personal finance journey, we provide convenient options for savings accounts, checking accounts, and more.