6 Proven Ideas to Get the Most Value From Your Tax Refund
(4 minute read) — It’s tax season! Many of us are counting the days until we receive our federal tax refund via direct deposit, U.S. mail, or a pre-paid debit card. And for good reason: the average American household got a refund of $2,549 last year.
Of course, we won’t all be eligible for a refund this year due to our specific tax situation. But if you’re expecting a refund in 2021, here are six ways you can spend it to get the greatest returns.
1. Strengthen your emergency savings account
Current economic reports show that Americans on average are saving more than they have in decades. If you already have a healthy emergency savings account, kudos. You can skip this part. But if you don’t, there are few better ways to use your tax refund.
In case of an unforeseen expense, you‘ll want to avoid resorting to a credit card or loan. Due to the interest payments they bring, they will only set you back farther in the long term. If you have enough in savings, you can pay once and move on with your life.
The rule of thumb from experts: set aside 3-6 months’ worth of living expenses so you’re covered. If you go through an unexpected job loss or emergency expense, you’ll be glad you did. For self-employed individuals, sole-income earners, and those who work on commission, save an amount equal to nine months of your living expenses.
Use your tax refund to kick start your savings. Then, to keep growing your financial cushion, add part of each paycheck into your emergency savings account via recurring transfer.
2. Buffer your retirement savings
According to PwC’s 2021 Retirement in America Report, a staggering 1 in 4 Americans has no retirement savings. Barely 1 in 3 feels that their retirement planning is on track. Even those who are saving will likely come up short.
Use your tax refund to boost your retirement contributions instantly. Deposit at least half of your refund into an individual retirement account (IRA) or other investment account. This is especially helpful as you approach retirement age.
For even better results, deposit a percentage of your 2021 tax refund and all future checks into a retirement savings account. To do so, set up a recurring transfer wherever you’ve opened your retirement account.
Have your retirement account with Unitus? Visit our Virtual Branch now, no matter where you are, and we’ll help you set up a recurring transfer to your retirement account.
3. Demolish your high-interest credit card or loan debt
Here’s another area where Americans have excelled in the past year. According to Reuters, since March 2020, American households have reduced their credit card debt by more than 14%, or a whopping $121 billion. If you still have outstanding debt, use your tax refund to take another big chunk out of it or eliminate it altogether.
The sooner you pay off high-interest-rate debt, the less you’ll pay over time in interest charges. Reducing your debt also frees up cash for your other financial goals, like emergency savings or educational investment.
For the biggest impact, apply all or most of your tax refund to one specific balance instead of spreading it out over multiple debts.
Have a loan with Unitus? It’s easy to pay anywhere, anytime by choosing “Bill Pay” from our digital banking menu. Log in now. And if you want to start fresh with a strong credit card, take a look at the Unitus Cash Back Rewards Visa. It sports no annual fee, serious Visa security, and robust rewards you can use for anything.
“Since March 2020, American households have reduced their credit card debt by more than 14%, or a whopping $121 billion.”
4. Homeowners: boost the value of your home
If you already have a healthy emergency stash with little debt, consider using your tax refund to upgrade your home. Not only will this improve your everyday quality of life, it will also increase your home’s value. For example, the National Association of Realtors’ (NAR) 2019 Remodeling Impact Report suggests replacing your roof will recoup you 107% of your expenses when you sell. And it’s easy to see how smaller home improvements, like replacing your windows or garage door, will also yield valuable returns when you sell.
If you have a project in mind, you can fund it with Equity Line Plus. Apply now.
5. Invest in your future: take a professional development course
An investment in yourself is one of the best you can ever make. A professional skills course helps you sharpen your skills, improve more value at your current job, and open up future opportunities for you. Completing an online certification course can help you stand out in a job interview, or make the case that you deserve that raise at your current job. What’s more, it can also improve your mental health: having that 3rd party credential can bestow some added confidence that could extend beyond the office.
6. Donate to organizations who help people in need
Make a donation to a qualified charitable organization. This is a win-win. Not only does it help those in need, it also gives you the satisfaction that you’re making life better for others. As a bonus, many charitable donations are tax deductible. That means donating could lower your tax responsibility this year.
If you’re wondering when you’ll get your tax refund
Funds take about three weeks to arrive electronically (via direct deposit or pre-paid debit card) and up to eight weeks by paper check. You’ll receive your refund through whichever method you selected when you filed your taxes this year.
- To check your tax refund status – Use the IRS’ online tool, Where’s My Refund? Or download the IRS2Go mobile app from Amazon, the App Store, or Google Play and find your status there.
- One last thing: a little goes a long way – Don’t forget to celebrate right now. To get the most of your tax refund, you don’t have to put it all into savings or charity. You can still enjoy a little splurge to reward yourself for working hard throughout the year. Yes, it’s true that the more you put into savings or long-term investments now, the better off you’ll be in the future. But it’s also important to treat yourself now. You’ve earned it!
About the author: Jacob Schnee
Jacob joined Unitus as Marketing Specialist in March 2015 and transitioned to Marketing Communications Specialist in March 2017. His experience has spanned hospitality, business development, consulting, and marketing in various industries along the east coast, west coast and in between.
When he is not developing internal and external communications for Unitus, he is engaging in recreational fitness, studying personality types and exploring the outdoors with his wife, dog, and two girls.