Top 10 Ways to Spend Your Tax Return

Top 10 Ways to Spend Your Tax Return

January 11, 2023
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Tax season can be a hassle, but if you’ve received a refund, the bright side might be feeling a little clearer. Here are a few ways that you can put that stash to good use as we scoot past the first quarter of the year!

1) Pay Down Your Debts (But Do it Intelligently)
Paying off debt can feel like a huge weight off your shoulders. But before eliminating that looming bill, make sure it’s worth paying down. Some low-interest debts (such as mortgages or student loans) might be better left alone. Why? Opportunity loss. Opportunity loss occurs when money that could fund long-term goals with greater growth potential is instead used to pay down low-interest debts. A financial professional can help you assess suitable financial solutions before you write a check to your creditors.

2) Build Your Emergency Savings (But Keep it Working for You)
Building a savings reserve takes discipline. A good rule of thumb is calculating your monthly living expenses and having three to six months of savings in your emergency reserve. Remember, your emergency savings should be liquid and accessible, so while some of your long-term goals may be well-funded, if they’re growth-oriented, they’re likely illiquid. Aim for a dedicated savings reserve that can grow without incurring hefty penalties in the event you need to access your funds on a rainy day.

3) Fund Your Retirement
The vast majority of Americans are significantly under-prepared for retirement.* It can be complicated to determine how much you should be saving and the best strategy for contributions, diversification, and risk management. If you’re already funding a retirement account, an annuity may be an excellent complement to hedge against longevity risk and provide income during your golden years. Your age, risk tolerance, and current nest egg are all factors in determining which solutions best suit your objectives, so it’s important to consult with a professional who can help you implement an iron-clad strategy.

4) Improve the Value of Your Home
Whether you’ve been in your home for a while or you just moved in, chances are there’s room to add value. An extended backyard, a fresh coat of paint, or new finishes can take your home’s value to the next level. Be strategic—check out homes in your neighborhood to ensure that the top prices can sustain the changes you’d like to make. If your home is in the lower to middle range of price points, upgrades will likely raise the value, whereas if your home is already in the top price point, your upgrades are less likely to provide a return on your investment.

5) Use it Toward Upward Personal Development 
Investing in yourself is always a worthy cause. Whether you’re looking for personal or professional development, there are plenty of courses, certifications, and subscriptions to help you develop healthy habits, expand your mind, or learn a new skill. A second (or third) language, a newfound passion for art, or an MBA are all examples of the expansive opportunities for growth that you could fund with your tax return. If you live with a significant other, consider taking on this adventure together. The possibilities are endless.

6) Cover Your Liabilities 
Assess your financial exposure and take steps to fill the gaps. There are many steps you can take to protect your assets: establishing your estate plan, evaluating your life insurance and long-term disability needs, setting up a business entity, and taking out an umbrella policy are just a few examples to get ahead of potential threats and uncertainties. Such measures require an understanding of complex legal and financial tools, so make sure you consult with financial, tax, and legal professionals to ensure any policies or entities you create are appropriately established and are suitable for your unique circumstances.

7) Make a Charitable Donation
Charitable donations are a fantastic way to give back to the community, fulfill your philanthropic goals, and even create a charitable legacy. Beyond these worthy causes, charitable donations can also have excellent financial benefits when incorporated into your larger financial strategy by allowing you to take advantage of tax deductions and meet specific thresholds. Of course, proper planning with a professional will ensure that you maximize both your donation and your benefits.

8) Start Your Nest Egg (for You or Someone Else)
If you already have your emergency savings and retirement on track, it could be a great time to start funding other long-term goals such as higher education or your estate. Whether you’re planning to meet a financial objective of your own or for the next generation, using your tax return to fund a growth-oriented product (such as a MEC or a 529 plan) may allow you to fund your goals more efficiently and completely.

9) Experiment (with Caution)
We all have our comfort zone, but too much of a good thing can lead to missed opportunities. With your tax return in hand, get educated on unfamiliar financial solutions with a professional you can trust. A diversified portfolio is an integral part of a holistic financial plan, so take the opportunity to get a “check-up” and see what might be missing from your financial picture.

10) Enjoy It
It’s important to enjoy the wealth you’ve built, so treat yourself to something special. If there’s a special trip you’ve wanted to take or a splurge-worthy item you’ve been eying, your refund is a great excuse to go for it. If you’d rather save for a heftier expenditure, such as a new home or large-scale renovation, consider letting your funds grow in a fixed-term solution such as a multi-year guaranteed annuity (MYGA) so you may potentially earn some interest while you save for your goal.

However you decide to spend your tax return, make the most of it by talking to a financial professional who can help you spend (or save) strategically and efficiently! Our experts have the tools and skills to help you make the most of every dollar.