Tax return season is upon us, take advantage of the lump sum return to do wonders for your savings. Make the most of your money by preparing for the long term. It is easy to want to put it towards a short-term want, but your future self will thank you more by investing in something long-term.
1. Build Up Your Emergency Savings
For most families, the pandemic affected their emergency savings. Now is a great time to rebuild your emergency savings with a set amount from your tax return. Many financial advisors recommend having enough in your emergency fund for six to eight months for your family. Nearly two years into the pandemic, we can all agree to plan for the unplannable as we are still living in a world of unknowns.
2. Invest In Your Retirement
If your emergency fund is solid and isn’t necessarily needing an extra cushion, consider boosting your retirement savings. In 2022, the maximum amount workers under 50 can contribute to a retirement plan is $20,500. You could direct deposit your refund towards a traditional or Roth IRA and contribute up to $6,000 in total. Also, be sure you’re taking full advantage of your employer match if one is offered.
3. Pay Off Debt
If you get a good-sized refund, consider paying off a certain debt. For example, if you have a credit card debt you’ve continuously been unable to get control of, now is your chance. Choose to pay off that debt and move forward in a sounder financial space.
4. Plan For The Future
Planning seems like a given, but consider not only your future but your children’s if your family is financially able. Depositing your return to jumpstart your savings for your children’s education is a great way to allocate your tax refund. Look into the possibilities of your contribution to your child’s savings being tax-deductible or possibilities of credit – this would allow you to withdraw the money for qualified education expenses and have it be tax-free.
Depositing your tax refund directly into areas of savings that make the most sense for you personally can give you a much-needed cushion moving forward. Your tax return is a great chunk of money for you to allocate to important areas of savings in your life that maybe need a little boost this year. When choosing where to best allocate, think in the long term. Remember, your future self is thanking you.
April 4, 2022 by Banterra Bank
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