Let’s look at seven smart things you can do with your tax refund in 2022.
Create an emergency fund.
More than half of Americans don’t have enough savings to cover themselves in the event of a sudden financial need, such as a job loss, medical emergency or major repair. Even if you plan on taking out a credit card or short-term loan, you’ll be paying high interest rates and carrying around a high balance. Having an emergency fund gives you some breathing room.
Pay off your debts.
Another smart way to use your tax refund is to pay off debts. It doesn’t make much sense to put a $2,000 tax refund in your account when you have a $2,000 credit card balance that’s charging you interest each month. Pay off your debts - you'll feel better, have lower credit card balances and owe less each month.
Buy life insurance.
Life insurance is easy to overlook, especially when you’re young and have plenty of time to work. But life insurance is an important thing to have, as it can provide protection for your loved ones at a relatively low cost. You can also take out a permanent life insurance policy that has a cash value savings component.
Fund your retirement.
Getting funds that aren’t part of your paycheck is exciting - but don’t let this get to your head! It’s better to take this money and put it toward your retirement, especially if you're not able to save much right now. You can use your tax money to fund a Roth or traditional IRA. One day in the future, you'll be glad you made this decision!
Invest in the stock market.
Traditionally, the stock market has offered greater return on investment than other savings avenues like CDs and bonds. We only recommend this option if you don’t have an immediate need for your money. The reason - stocks fluctuate and it’s possible that you can lose the money you invest.
Start a business.
If you’ve always wanted to start a business on the side, such as selling crafts or being a personal trainer, your tax refund can help you out. This money can be used to buy inventory, build a website or market your services.
Make home improvements.
Does your home need some TLC? Putting money into your home is generally a great decision, as your home is one of your biggest assets and you can get a greater return on investment one day. Some of the best repairs to spend your money on include new windows, new appliances and a new HVAC system.
Hopefully, you now have some smart ideas on what you can do with your tax refund! If you’re not sure how to invest your money, schedule an appointment with Leonard Financial Solutions for personalized advice.