How to use your 2022 tax refund, according to experts
In the first pandemic year without stimulus payments, the good old tax refund will be the only bargain most households can expect this year – and damn it, they expect it. A new study by GOBankingRates polled 1,000 American adults nationwide and found that 85% of respondents plan to get money back from the government.
Since this will be the only money that will come back to most households, they will have thought more about how they spend it. GOBankingRates asked the experts to guide them in the right direction.
Also see: Here is the average IRS tax refund amount by state
Tax Refund Tip: 3 things that could help you get your money sooner
Reduce your debt and that stack of bills
Three out of four people who took the survey – 75.6%, although respondents could choose more than one answer – said they would use their tax refund in the least exciting way imaginable: to pay off a debt or keep debt collectors at bay.
It’s not the stuff dreams are made of, but when you’re behind the 8 ball, the trump needs to want.
“The best way to spend your tax refund is to pay off high-interest debt,” said Chloe Choe, owner of Off-hour Hustle. “High-interest debt will keep you from reaching your financial goals, and it’s important to pay it off as soon as possible.”
Save it for a rainy day
Another 44.6% planned to turn their tax refund into savings – and experts agree on this logic too.
“Building your piggy bank for a rainy day will save you a lot of heartache when your financing plans fail,” said Amanda Sullivan, research analyst at CreditDonkey. “Putting extra money into an emergency savings account will help you prepare for the worst.”
You must beware: Reasons you might not get a tax refund this year
If your emergency fund is already full and you have kids pursuing college, a college fund is a great place for your tax refund.
“Whether you’re just starting to fund a college education or need to expand it, using your tax refund to do so is a wise decision to make and can help pay for your kids to go to college. later,” Julie Ramhold said. , a consumer analyst with DealNews.com. “Make sure…you pick an account that will earn at least some interest so you always earn a little something as you build it over time.”
Invest it in a smart and safe fund
About 15% of respondents planned to grow their refund by investing it. Global turmoil and rising interest rates have given the market a tough start to 2022. If you’re wary of equities, you have good instincts and options.
“I would recommend investing in real estate because the risks are generally low but the rewards are high,” said Carter Seuthe, CEO of Credit Summit. “One feasible option is REITs.”
Seuthe talks about real estate investment trusts, which let you buy real estate without owning physical property through funds that are bought and sold in stocks, just like stocks.
Olivier David, founder of Green in black and whiteis a follower of another type of alternative investment.
“A TFSA is a tax-free savings account that allows you to withdraw money at any time,” David said. “It is placed in different investments that you or an investment agent choose that will make you more money over time. It’s a great way to use your tax return and it will help you in the long run. »
Invest it in your home
If you’re a homeowner, the smartest long-term investment may not be in stocks or real estate, unless it’s the real estate you live in.
“One of the best ways to spend your tax refund is to use it to fix or improve something around the house,” said Matthew Robbs, founder of Smart Savings Tips. “You will be able to enjoy this repair or upgrade every day, and in the long run, it will also increase the value of your home.”
Invest it in yourself
Another option is to spend your tax refund on a future new and improved version of yourself.
“Using your tax refund to invest in stocks or real estate could be an attractive financial investment, but you should also use some of that money to invest in yourself,” says Erin Ellis, Certified Financial Advisor. near Philadelphia Federal Credit Union.
“Do you need more professional clothes? Buy a few versatile pieces that can help you feel more confident. Was there a skill you wanted to learn to advance your career? Enroll in a course or seminar where you can acquire this knowledge. Want to exercise more or eat healthier? Look for affordable gym memberships or nutrition programs that may be right for you. These are all opportunities to use your money in ways that will benefit you in the long run.
If you can afford it, loosen up a bit
About one in five of respondents to the study – 19.3% – planned to use at least part of their refund not to pay bills or build up their savings, but to treat themselves and have a little fun. If you can afford it, it might be the best thing you can do.
“You don’t have to deprive yourself of extra personal care,” said Jeffrey Zhou, co-founder and CEO of Fig Loans. “Use your tax refund to treat yourself to a relaxing spa massage or a satisfying meal. A little luxury once in a while is good if it helps you keep your sanity and feel better because you can’t pour from an empty cup.
Use it to escape
Along the same lines, 10.6% plan to use their refund to satisfy their wanderlust, which many have not been able to do since at least 2019. Here too, if your immediate financial needs are met, it is very good .
“It may not be the most sensible or profitable idea; but, after the global pandemic, we have lost almost two years of our lives and we are unable to recover them,” said Karl Tippins, financial expert at retirement time. “Maybe it’s time to do something fun, unexpected and have a wild time. You can’t take your money with you in the end, so enjoy it while you can.
give it away
Spending your refund on yourself might make you feel good, but spending it on someone else might make you feel good – and 2.6% of respondents plan to do just that.
“Spend it on other people,” said Krishna Rungta, founder of Guru99. “Use your tax refund to donate to a good cause or invest in someone else’s future. Consider giving a portion of your refunds to a friend or family member in need, or investing in a program that helps others in your community. You’ll feel good about helping out, and you might even make some new connections along the way. »
Brian Bram, Founder and CEO of home gymagrees.
“Help others in need in your community,” he said. “Helping others is a great way to make a difference in your community and also makes you feel good about yourself. It’s a win-win situation. So why not take some time this spring to find an organization that needs your help and do what you can to support it?
“Try donating money or time to a local charity, volunteering at a homeless shelter or soup kitchen, or helping out with a food drive. What matters is that you helped and made a difference, and you’ll definitely be glad you did – and nothing can ever replace that feeling.
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This article originally appeared on GOBankingRates.com: How to use your 2022 tax refund, according to experts