2023 Tax Refund: Wise Investment Strategies They Don’t Tell You

If you are aware of the tax reporting season, you are likely also aware that submitting your tax return frequently results in a tax refund a few weeks later. 2023 Tax Refund: Wise Investment Strategies They Don’t Tell You

Many people receive at least a small amount of money each year, but the size of their tax refund depends on a wide variety of factors, including how much money they made the previous year and whether or not they have any dependents.

2023 Tax Refund: Wise Investment Strategies They Don't Tell You
Jumping man with joy on its face due to reimbursement of taxpayers. (Photo: iStock Photo)

If you’ve ever gotten a tax refund, you know how that money can feel like a bonus or a nice surprise.

You might have thought of your refund as an unexpected gift and used it to finance a trip or a significant purchase that you otherwise couldn’t easily afford.

If that was you, it’s time to face a harsh reality: Are not a wise investment move to view your tax return as a windfall that you can use however you please. 

There are sensible, responsible ways to use your tax refund that may not be glamorous or thrilling but can actually help you make more money or otherwise position you for future financial success.

You can make wise investment decisions if you can control the desire to splurge with your tax refund; all it takes is a little self-control and some money management skills.

Even if you are doubtful that you will get a tax refund this year, it doesn’t harm to consider what you might do with the money. After all, this could be the year you organize your money, and one (or more) of these wise investment things to do with your tax refund could be a wise investment.

Here are top 8 wise investment strategies

1. Create a fund for emergencies

One of the fundamental foundations of sound financial management is having cash savings, also known as an emergency fund or a rainy day fund. This fund acts as a safety net in case of emergency and provides a financial cushion to prevent you from going into debt to pay for unexpected house repairs or vehicle repairs, for example. 

Use your tax refund to open a savings account that you only access during genuine emergencies if you don’t already have any money put aside for such purposes. Any cushion is preferable to none, and this initial contribution might serve as a catalyst for your savings.

Many financial experts advise saving three to six months’ worth of expenditures in an emergency fund, so if you only have a small rainy day fund put aside, think about adding to it to be better prepared for the unexpected.

2. Debt reduction for credit cards

It’s challenging to figure out how to eliminate credit card debt, but doing so will significantly relieve the pressure on your finances. Use your refund to pay down high-interest debt on your credit card if you have a tiny emergency fund and high credit card debt. Even if you are unable to pay off the debt entirely, taking steps to lower it will help you save money on interest payments and accelerate the overall repayment process.

3. Spend more toward your student loans

Making additional payments can speed up the repayment of your student loan obligation, which is likely to be a sizable one. Similar to credit card debt, lowering the principle, or the amount you initially owe, lowers the amount of interest—additional money you’ll have to pay off over time. Talk to your lender or servicer to make sure your additional payment goes toward the principal; even one extra payment per year with your tax refund can help.

4. An increase in your mortgage payments

The same idea holds true for mortgage payments: If you have a mortgage, using a lump sum payment (like your tax refund) can lower your outstanding loan balance and lower the overall amount of interest you’ll have to pay over the course of the loan.

5. Donate to a 529 plan

A 529 plan can help you pay for the cost of a child’s (or grandchild’s) college schooling a little bit more easily. Due to the high contribution caps for 529 plans, it is always a good idea to increase any existing payments with your tax refund.

6. Include in a Roth IRA

Tax season might be a good opportunity to open a Roth IRA if you’re qualified but haven’t already done so. This windfall can be a wonderful supplement to your existing plan (if you already have one). These tax-sheltered accounts are a great addition to any employer-sponsored retirement savings plans you may be a part of because they allow any investment profits to be withdrawn tax-free in retirement.

Even though you won’t start seeing the benefits of your tax refund for a few years, adding your tax refund to your retirement savings is a wise investment to put that money to work for you. Roth IRA contribution limits are relatively low ($6,500 in 2023, or $7,500 if you’re 50 or older), so you’ll want to make sure you’re not exceeding that limit.

7. Increase a fund for wise investment

If you’ve already started investing, tax season is a good opportunity to evaluate your holdings and make sure they’re helping you get closer to your financial objectives. Adjust your course as required, then use your refund to increase your portfolio. A tax refund can serve as your first deposit into a wise investment account if you’ve been trying to decide when to start saving.

8. Place it on a Disk.

Consider a certificate of deposit (CD) if you like the concept of having your money work for you but aren’t sure about wise investment These financial products give higher interest rates on your money and are essentially risk-free. However, your refund money will grow more in a CD than it would in a savings account. The catch is that you can’t access the money until the end of the CD’s term (unless you choose a no-penalty CD).

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One Comment

  1. I want to to thank you for this very good read!! I certainly enjoyed every little bit of it. I have got you book-marked to check out new stuff you postÖ

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