In the midst of shorter days and colder temperatures, there is one day everyone looks forward to. No, we’re not talking about the winter holidays. We’re talking about the day you receive your tax refund! After the work of organizing, completing, and filing your taxes, finding out you have a refund coming is such a nice reward. When a return lands in your bank account or your mailbox, there are several possibilities for how to use it. Need ideas? This year, we’re sharing a few creative ways to use your tax refund.
1. Spend your tax refund on yourself.
At the end of the year, your annual tax refund can serve as a small reward for a successful year. If you’re proud of your progress, recognize that fact by gifting yourself a little something. Here are a few ideas:
Purchase that gift you didn’t get for the holidays.
Although you dropped some hints, you may not have received a gift you were hoping for over the holidays. No need to wait for next year – use your tax refund to pay for all or part of the gift to yourself. It’s better to give than receive but buying a coveted item can be pretty satisfying, especially if it’s from good old Uncle Sam.
Buy something on a post-holiday sale.
Post-holiday sales are a great way to get a wonderful deal on something that may have commanded a high price leading up to the holidays. After December, retailers are looking to offload stock, which means you can buy necessary household items at reduced prices.
Make an investment in your New Year’s resolutions.
When you’re reflecting on the past year, there may be certain situations or habits you want to change for the better. Give your New Year’s resolutions momentum by using your tax refund to pay for your gym membership or equipment, a new hobby you want to pick up, or seed fund for travel or renovations you want to follow through on in the new year.
2. Spend your tax return on others.
Open or contribute to a 529 savings account for a child.
Putting money in an educational savings account can make a huge impact on the life of a child, either your own or someone else’s. Since 529 accounts can grow more quickly than traditional savings accounts, it’s a feasible way to help bolster your savings for college.
Investors should carefully consider the investment objectives, risks, charges, expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.
Buy birthday or holiday presents for next year.
Planning ahead always pays off, and that’s especially true when it comes to gifting. Birthdays and holidays return each year without fail, which means you can purchase a gift for someone anytime you see one. Make a designated “future gifts” area in a closet, attic, or basement, and turn gift-giving from a harried rush to a leisurely affair. Post-holiday sales are a wonderful time to stock up on seasonal gifts that can be enjoyed exactly one calendar year later. Spend more time sipping wassail and listening to holiday music and less time frantically clicking or driving to check off everyone’s wish lists.
3. Spend your tax return on your future.
The wisest choice is probably the least fun, but it can make a major difference in your future. As financial planners, we’re always thinking about the power money can have when it’s used strategically. If you have a sudden windfall from a tax return or from another avenue, you may want to consider how it could be used to improve your life in the future. What do we mean? Here are a few ways to invest that money in ways that can benefit your future self.
Make housing improvements.
Leaky roofs, crumbling foundations, and cracked plumbing lines are all problems that can multiply in cost if they’re not addressed immediately. If you’ve noticed subpar performance from one of the areas in your home, an infusion of cash can be used to fix or upgrade household components. You’ll protect your investment, improve your quality of life, and save yourself from the catastrophic implications of unaddressed issues.
Spend on car maintenance.
Unexpected vehicle costs can run into the thousands, and they always seem to come at the most inconvenient time possible. If your car needs a little love, your tax return can buy peace of mind by investing in preventative vehicle maintenance.
Open or contribute to a health savings account (HSA).
An HSA is a great choice for a healthy individual or family with fixed medical costs. Since money can grow in an HSA tax-free, you can grow contributions and take charge of your medical care expenses. Just remember that the IRS limit for HSA contributions in 2021 is $3,600 for individuals and $7,200 for family coverage.
Invest the money in your retirement account.
Even a small amount of money early in life can grow to have a powerful impact by the time you retire. If you find yourself with extra income at the end of the year, invest it in your 401(k), IRA, or Roth IRA to invest in your future through the power of compound interest.
Understand Your Options with SageSpring Wealth Partners
If you have questions about the best way to use your tax refund, reach out to a financial advisor at SageSpring Wealth Partners. While finances can be confusing, we’re happy to answer your financial questions to help you make informed choices about your future. Contact an advisor today to schedule a consultation.
