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Using Your 2021 Tax Refund Wisely

Will the amount of money in your checking account be higher by nearly $3,000 dollars soon? Maybe, if you’re one of the millions of people getting a tax refund.

According to figures from the IRS, the average refund amount has been just a touch more than $2,800 for the past two tax seasons. And if you’re an average taxpayer, you’ll probably wonder how to spend your tax refund wisely.

The key word here is “wisely,” at least from a financial institution's perspective. It can be tempting to treat a generous (or even modest) tax return as “found money.” However, it’s best to plan out your tax return spending in ways that will benefit you and your loved ones.

Using Your Tax Refund Wisely

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Whether it's your first time or 20th getting money back after paying your taxes, consider where to put your dollars. Plan before the IRS directly deposits your refund or sends you a check. Why? If you’ve decided ahead of time how to spend your tax refund, you’ll be less likely to make sudden changes and splurge on something you don’t need — or can’t afford.

As part of your planning, keep the following tips in mind:

1. Paying down credit card debt will get you closer to financial freedom.

You might not think it sounds like fun to answer the question, “What are the best ways to invest my tax refund?” by answering, “Paying off your debt!” However, lowering your debt pays you back later.

If you have $2,000 in unpaid debt on your credit card, you’re paying interest on that debt every month. Using your tax refund to wipe away your debt puts you in a much better financial standing. It may also improve your credit rating.

2. Stashing your tax return into CD will net you money back.

Certificates of deposit are individual investment tools that anyone can use to build a nest egg over time. The longer the length that the CD takes to mature, the higher the corresponding interest rate.

3. Paying for home upgrades can increase the value of your property.

A lot of people who receive tax refunds are homeowners. If you fall into this category, think about earmarking your tax return spending toward home improvements. These could range from adding a deck to your backyard to swapping your old windows for energy-efficient replacements.

Though not all home upgrades will cause your property value to soar, even cosmetic ones can give your house a boost. Painting your front door, landscaping your flower beds, or adding a privacy fence are all curb appeal techniques that can make your home the nicest on the block. That’s not a bad thing, especially if you plan to put it on the market in the next few years.

4. Donating a portion of your tax return is always an option.

Offering money from your tax return to support your favorite charities can be very rewarding. After all, nonprofits around the globe are always in need of financial support. They would be grateful if you gave even 5% of your tax refund to them to use toward their mission.

Be sure to track all your charitable giving, too. You may be able to get a tax break for next year if your donations exceed a certain amount. Check with a financial professional to determine what your minimum donating limits are.

Wondering What to Do with Your Tax Refund?

Maybe you still haven’t decided where to put your tax refund when it comes your way. Oklahoma Central Credit Union is a local financial partner offering convenient personal savings accounts, low interest auto loans, personalized mortgage, home equity loans, and much more. Consultations with a member service representative are available when you need it.
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