Updated: Mar 24
If you received a tax refund in 2022, you're in good company. According to government statistics, $129 billion in refunds went out by early March, and more funds were distributed over the next few months.
Receiving a lump sum of money is always good news, and the odds are high that you've already spent some time thinking about what you can – and should – do with it. If you want to put your refund to good use, Think & Profit Consulting recommend several popular strategies that can pay off.
Reduce Your High-Interest Debt
If you are burdened with credit card debt, use your refund to pay off as much of your balance as possible. Living with credit card debt keeps millions of Americans from getting ahead. The rates are not only exorbitant but also compounding, resulting in debt that continues to escalate over time.
Create an Emergency Fund
If you are like most Americans, you don't have any extra money stashed away for emergencies. Instead, if you lose your job or need to replace your furnace, your only option is to borrow money.
To avoid this, set up an emergency fund. Widow411 explains that having extra money set aside reduces your stress and gives you peace of mind. Then, if an emergency strikes, you are financially prepared to tackle it.
Invest in Your Future
It's never too early to open up an individual retirement account (IRA). In fact, the earlier you invest money, the longer it will have to grow. And as your investment generates income, that income can be reinvested for additional earnings. With a traditional IRA, you can contribute pre-tax dollars to the fund, while money invested in a Roth IRA is taxed up front but allowed to grow with no additional taxation down the road.
If you have children, you may also want to invest some of your capital in a college fund. According to Saving for College, while there are many options, a 529 plan can be especially worthwhile. It's an investment account that allows the earnings to grow tax-free as long as the funds are used for education-related costs.
You can also take advantage of this lump sum of cash to invest in purchasing a home. Having a decent size down payment can reduce your monthly mortgage payments. A good guide is to have between 3.5 - 5% of the sale price on hand to put down at purchase. At Think& Profit Consulting, we can provide recommendations to help you choose among options to save out of pocket closing cost.
Invest in a Business
If you've always dreamed of running your own company, your tax refund can help you realize those dreams. Use your refund as seed capital to get started with a Pennsylvania LLC. With so many home-based businesses these days, even a modest sum of money can help you get your business up and running.
To get started, you'll need enough capital to:
● Buy a web domain for your company.
● Hire a graphic designer to create your website.
● Invest in the necessary amount of inventory and supplies.
● Purchase personalized business cards to pass out to potential clients.
To design a business card that adequately captures the essence of your company, consider using customizable templates that allow you to choose your own style, colors, fonts, and images.
Invest in Yourself
Your health and well-being are valuable, so what better way to spend your refund than on a bit of self-care? Ideas include:
● Purchasing a gym membership or a piece of workout equipment to elevate your exercise regime.
● Hiring a nutritionist to help you improve your eating habits.
● Investing in a new mattress, pillow, or bedding to ensure you get a good night's sleep.
● Spending the day at the local spa to treat yourself to some much-needed rest and rejuvenation.
Use Your Money Strategically
With so many worthwhile ways to invest extra money, you should have no problem finding a use for your tax rebate. Whether you decide to increase your financial security, purchase a new home, invest in your future, or use the money for self-care, the funds will hopefully improve your life and future outlook.
For tax preparation and financial services for individuals and businesses, visit Think & Profit Consulting today!
Written by Emma Grace Brown 3/24/2023