It is normal for all taxpayers to look for ways to increase their tax refund and convert it into money. There are legal methods of increasing tax funds, but this article will focus on different ways to convert tax refunds to more cash without stress. Read on!
Financial emergencies are unforeseen circumstances we must be prepared for, like the pandemic. A study by the Federal Reserve shows that more than 25% of United States citizens need more time to be ready, and some people need more savings. Fortunately, a tax refund is an excellent way to go about it. It is advisable to save up to six months of living expenses in a separate account. Many accounts offer high-interest rates, including traditional savings, money accounts with high dividend rates, and several other deposit accounts (bump, flex, basic, and jumbo certificate with high guaranteed return on investment. You can consult a financial advisor to know which package will best reach your goal.
The SEP IRA is a long-term plan for your tax refund. You expect the money every 30 days, but a few contributions can help you reach your retirement goal. Saving half of your tax refund will increase the average deposit. However, you must actively contribute to the account, and your tax refund is the easiest way to catch up.
A different way to use tax refund that most taxpayers have yet to think of is a CD. CD plans have high annual yield and guaranteed earnings. A tax refund is a fast way to gain interest through CD before the term expires. For example, in May 2021, the return on CD was up to 0.65% APY.
As mentioned earlier, putting a fifth of your tax refund in CD will amount to a chunk of cash. The interest rate may be higher than in traditional savings accounts. You may not make much money at the start, but when the tax refund accumulates in your account, the extra interest will get to a lump sum of cash you can use for a purchase.
Besides an emergency fund account, you can opt for saving options. Go for a high-yield savings account. The account can accumulate the money from your tax refund. You can save money to pay a debt or as a down payment on a property, wedding, or vacation.
Ensure you withdraw the money in a lump sum. Also, if your life goal changes with time, a savings account is a single account with easy adaptation.
However, keep in mind that some have higher yields than others. So, you can separate your savings depending on their purpose to avoid mismanagement.
Credit card debts are the primary financial imbalance of Americans. The interest can pile up, destroying your financial plan, and in addition, the card attracts extra expenses. For example, if you owe $3000 in credit card debts with an interest of 18% will attract a minimum payment of 3% resulting in $90 per month. However, the interest rate will decrease with time resulting in $2698, which will take more than 14 years to pay off. In summary, after repaying the debt, the item could cost almost double the price. The best way to start paying these debts is using your tax refund. You can pay $180 per month, which will cancel your debts in 20 months.
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