The taxman cometh — and if you’re lucky enough, he’ll give you a refund this year.
If so, consider your refund as a financial opportunity to do something wise with your money. After all, you’ve paid your tax burden to Uncle Sam all year long; now it’s time to put a checkmark next to some personal financial goals for yourself.
On average taxpayers in the U.S. received a $3000 refund in 2020. Chances are you’re among them. That’s a good chunk of money to put toward a variety of uses.
At AdelFi, we know it’s tempting to treat a tax refund as “mad money” and give in to impulse purchases. However, in 10 years, chances are that you won’t recall what you bought with your refund. Consider, instead, putting that money towards securing your financial future and obtaining some peace of mind.
Here are five ways to use your tax refund, based on Biblically-based financial principles:
1. Do some good. Before you invest a dime of your refund, remember that sharing the abundance of what you have is the foundation of Biblically-based financial planning. Tithing is the first responsibility of earning money, and this principle applies to your tax refund, too.
2. Jumpstart your emergency fund. If you’re among the large number of Americans without a financial safety net, starting an emergency fund may be one of the best ways to use your refund. According to recent studies, more than half of the U.S. can’t cover a $1,000 expense with their savings if they needed to. The Bible prescribes building financial reserves, and most financial planners recommend saving between three and six months’ worth of living expenses, depending on your lifestyle, family dynamics and employment status. Creating an emergency fund with your tax refund could be the financial break you need down the road.
3. Pay down debt. Credit card or other forms of debt could be strangling your livelihood and preventing you from stewarding the money endowed to you. Paying off a credit card balance with an 18% interest rate is equal to getting an 18% return on your investments. That’s like an instant raise!
4. Invest in yourself. Have you set your sights on getting a raise, starting a business, or switching careers this year? If so, one of the better ways to use your tax refund is to invest in yourself through continued education or job training. You may not see the benefits immediately, but you will have more earning power in the future.
5. Start planning for retirement. Whether you’re a new college graduate with decades of employment ahead of you or a late bloomer who has put off retirement planning too long, it’s always the right time to bolster retirement savings. Consider putting your refund into an Individual Retirement Account (IRA). Traditional IRAs may provide for tax deductions on contributions while Roth IRAs provide tax-free withdrawals during retirement. In either case, growth in your savings is tax-deferred.
Following these recommendations – or even just one of them – will put you a step closer to financial stability. And because most people don’t include refunds in their budget forecasts, this is a small windfall that can be put to great use allowing you to reap the financial rewards for years to come.
