It’s official – tax season is just around the corner. The Internal Revenue Agency (IRS) announced last week that January 23 will officially mark the beginning of the 2023 tax season.
Look, we get it, taxes aren’t exactly thrilling. Saving money and dealing with finances in the appropriate way is kind of like a healthy diet – you know you should do more of it, but it’s hard to resist temptations and spur-of-the-moment decisions. Lucky for you, a tax return is a great starting point to set yourself up for a better financial position in the future. So, learn to make sure your money continues to work for you with these 5 financially smart moves to make with your 2023 tax return.
1. Create an Emergency Fund
If we’ve learned anything in the last few years, expect the unexpected. Life happens and that’s when the most unexpected expenses occur. And if you don’t have the funds to pay for those unexpected expenses, this can result in taking on debt. A smart move would be to take a portion or all of your refund (depending on your financial situation) and put it into some kind of savings account. Think of this like a “break in case of emergency” fund. Typically, a good rule of thumb is to have three to six months’ with of expenses saved.
2. Pay Off Debt
While this may be the least favorite suggestion we have (because let’s be real, no one wants to think about the debt they have), you’re better off spending your refund on helping to pay It down ASAP. Whether it’s debt associated with credit cards or student loans, paying it off can help improve your credit score!
If you’re looking for something a little bit more fun to do with your return, you could always invest in the stock market. While its fluctuations make it a riskier choice in the coming months, the long-term outlook makes it a better option if you don’t have immediate financial need. Try and pick individual stocks or select a fund that moves up and down along the market.
4. Build Your Savings
What’s helpful for your tax return is that you’re able to split it up into three accounts via direct deposit. This means it’s the perfect opportunity to stash some $$ into a savings account that relatively inconvenient for you to access, assuring it’ll stay out of sight and out of mind until you absolutely need it.
5. Add To Your Retirement Fund
No one likes to think about retirement, especially in the early stages of their career. But the thing is, by the time you need the money, the time you could have used to accumulate your retirement fund just isn’t there. So, one of the best ways you can spend some (or all!) of your return is by putting towards your retirement savings account, particularly a Roth IRA, which is super easy to max out (limit of $6,000/year).
Want to be careful you don’t get yourself in over you head with you finances this year? Here are 5 strategies to avoid going into debt!