With a month to go until April, tax season is upon us once again. This year, American taxpayers must file by Thursday, April 15. And if you’re like many people, you may be thinking about the potential of receiving a tax refund.
While deciding what to do with the money is a personal decision, the events of the past 12 months -- especially with the coronavirus pandemic -- means that life likely looks different for each of us than it does in a “normal” year. Whether you made the transition to working from home or continued reporting to work in-person, or whether you experienced an employment change such as being laid off.
With that in mind, consider a few ways you can use your tax refund to best fit your current situation.
If You’re Currently Working
1. Start or Add to an Emergency Fund
This year has truly taught many of us a lesson about the unpredictable nature of life and uncertain times -- we can’t possibly prepare for everything. But having an emergency fund -- or as we like to call them, “peace of mind” accounts -- can make a huge difference. It may help you be a little more prepared for those unpredictable moments.
If you don’t have an emergency fund, consider starting one with your tax refund money. If you already have an emergency fund, it still could be a good idea to contribute all or part of your refund to bolster it further. You can never have too much saved for an emergency.
2. Stash it in Savings
Saving money isn’t only for emergencies. What are you saving for right now? Whether it’s a retirement savings account or 529 college savings account, money from a tax return is a great way to give these accounts a boost. Remember – with any type of savings account, the earlier you start saving, the more opportunity your money has to grow.
While it may be tempting to spend your tax refund in other ways, setting some or all of it aside for savings may help ensure a stronger financial situation in the long term.
3. Spend it on You
It’s been a hard year -- that’s for sure. And as the U.S. vaccine rollout continues to pick up speed, it’s getting a little bit easier to find the light at the end of the tunnel. Are you dreaming of a vacation? Visiting family you haven’t seen since before the pandemic? Or just having friends over for a game night?
Whatever life has looked like for you over the past year, there’s no shame in directing some of your tax refund back to yourself. Whether that’s your vacation fund, or even something for your home office that will make working from home a little easier. It’s okay to spend some of your tax refund to pay for something you’ll be excited about.
If You’re Currently Not Working
1. Take Care of the Basics
When it comes to being jobless, your main focus is spending wisely -- making sure you’re able to cover the cost of daily living expenses and monthly payments. A tax refund -- regardless of its size -- can be helpful toward meeting that goal. Ask yourself what your most important necessities are: these likely include your mortgage or rent payments, utilities such as electricity, and putting food on the table.
If these areas of your life are stable, consider other priority areas including health insurance, retirement contributions, and credit card debt or loan payments.
When you’ve determined your priorities, direct the money from your tax refund there. While it may come to you only in one payment, some tax refunds can be the size of a monthly paycheck. Use it to your advantage.
2. Give Yourself a Leg Up in the Job Search
Job searching is not easy -- especially in an economy like this, when so many people are in the same position. The competition is off the charts right now. Think about how your tax refund could help you achieve your career goals, even if you’re currently out of work.
For example: Consider directing some of your payout toward a paid job board, premium subscription to a networking platform such as LinkedIn, or even working with a recruiter. Or, take an online certification course that could help set you apart from the competition.
3. Invest in Yourself
This may look a little different for everyone based on your individual situation. Just because you’re not working, it doesn’t mean you don’t deserve to have any fun or treat yourself to something that may be a “want” rather than a “need.”
Whether that’s setting some money aside for a future when you’re able to participate in your favorite activities more freely, or ordering takeout for a nice dinner with your family for the first time since life got stressful. While you can probably think of many other more immediate ways to spend the majority of your refund, there’s no harm in using part of it for something that brings you a little joy.
Academy Bank Will Meet You Where You Are
No matter what the past year has looked like for you, Academy Bank is working hard to help you achieve your financial goals. If you’re looking for a partner in your personal finance journey, we provide convenient options for savings accounts, checking accounts, and more.