While tax season isn’t high on everyone’s list of things they consider a „fun time“, the tax refunds can definitely make it worth your while, especially if you know exactly where you’ll invest that money, sometimes even months before you receive it.
Sure, you might go all gung ho on the money and spend it all in a shopping spree, but doing so won’t evolve your finances in the slightest, and might even have a negative impact on your financial security, so it might be clever to put that money to good use and invest it somewhere.
Your best bet would be paying off any debt you’ve got hanging loose, as living with it can be detrimental to your financial and mental health, especially if you continuously force yourself into delaying the payments, regardless of whether it’s your student loans, medical services or something else entirely.
Credit cards are the most common issue everyone encounters, and with their sky-high interest rates, it’s no wonder, which means that the sooner you pay off this kind of debt, the less you’ll be paying in interest charges later on down the line.
Put some money in your emergency fund
The next thing you could work on is your emergency fund, which is practically a failsafe in case you lose your job, your salary is reduced or you’re suddenly facing extremely high and unexpected medical bills.
With this in mind, you should build your emergency fund to last you anywhere from 3 to 6 months, covering all your expenses during this time, kind of like what your retirement savings are supposed to last you once you’re no longer generating income from a job.
In any case, high-yield savings accounts are the best way to store this money, as they’ll allow it to grow exponentially while also having it on easy access should the situation arise.
If the pandemic has taught us anything, it’s that we’ve all been neglecting our HSA’s, which are now more important than ever when the chances of contracting a dangerous disease like COVID-19 are higher than ever.
The biggest advantage that HSA’s offer is that they’re triple tax-advantageous, meaning that your contributions to the account, the return, and the withdrawals you’ll be making are all tax-free.
This year, the limit for HSA contributions is $3.6k for individuals and $7.3k for family plans.
Finally, you could invest your money into education, whether it be your own or your child’s, and the best option for these kinds of investments is either a high-yield savings account or an investment account, and if you opt for the latter, a diverse investment portfolio will do wonders.
A 529 plan is specifically designed for college savings, while acting as a sort of an investment account as the earnings are tax-free and so are your withdrawals, so long as you’re using them for education-related things.