The Internal Revenue Service (IRS) says the average tax refund for early filers in 2022 was $2,323.1 Even if your refund wasn’t quite as hefty, you can still put it to good use. It’s always OK to treat yourself within the confines of a budget, but there are also some more strategic ways to spend your return that’ll benefit you financially. Below are a few to consider as you contemplate your next move.
Wise ways to use your tax return
1. Pay down debt
In addition to causing stress, debt affects many facets of your financial well-being. For example, your debt-to-income ratio (DTI) is a factor in determining your credit score. A poor credit score can affect the credit opportunities available to you, which is why it’s wise to review your credit report and spot areas for improvement – including your DTI. As a whole, paying down debt will cause ripples of positive change. Consider redirecting your tax refund toward high-interest debt, as these have a chance to snowball. Even if it isn’t a large payment, it’s one small step toward financial freedom.
2. Let your money grow
Some financial products help you grow your money. For example, a certificate is a fixed-term account. You make an initial deposit and enjoy a fixed rate for a fixed amount of time to generate a predictable, guaranteed return.
Another great option is a money market account. Due to the tiered-rate structure of some of these accounts, you can earn more as your balance grows. The extra savings momentum afforded through these products will transform your one-time influx of funds into a long-term investment strategy.
3. Create (or pad) an emergency fund
Life may bring the unexpected. Whether that’s medical bills or a job loss, it’s important to have money to fall back on when times get tough. That’s where an emergency fund comes into play. This money will provide you with financial security while you find your footing. As a rule of thumb, it’s best to have about three to six months-worth of living expenses stowed away. A tax refund can help you work toward this goal.
General Electric Credit Union (GECU) believes in taking a collaborative, educational approach to financial services. That’s why we offer a wealth of complimentary resources and tools geared at Improving the Quality of Your Financial Life and opening doors of opportunity. From on-demand webinars to Financial Coaches at select branches, we deliver insight that will guide you during tax time and beyond. And if you set up direct deposit when filing taxes, checking your transaction history in Online Banking or our mobile app2 is a simple way to confirm whether you received the money you’re owed.