The 5 Smartest Ways to Spend Your 2022 Tax Refund

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The median tax refund for 2020 was $ 2,827, a good amount of money most Americans expect each year. It can be tempting to use this money for a vacation or a large purchase, especially since the stress of the pandemic has built up the demand for travel.

However, tax refunds are an excellent tool that can jumpstart our finances in a number of ways. Here are five smart ways to use your tax refund in 2022 to improve your financial game.

1. Create an emergency fund

About one in four Americans have no savings for emergencies. Unexpected expenses are a major cause of people getting into debt. If you’re financially prepared, it’s a lot less stressful to face life’s unpleasant surprises, whether your dog breaks a leg or your car decides to stop you.

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Some conventional wisdom calls for an emergency fund to cover three to six months of living expenses. Still, if you’re starting from scratch, nearly $ 3,000 is a good safety net that should help you navigate life’s bumps.

2. Pay off high-interest debt

It’s hard to stay financially on your feet, much less build wealth, if you’re paying massive interest rates on things like credit cards or payday loans. These loans keep you in debt, generating tons of interest money as you make minimum payments month after month.

Credit card companies don’t even try to hide it; Look at any credit card statement and find the little box that explains how to make minimum payments means it will take 10 to 12 years to pay off your balance. Eliminate high-interest debt as quickly as possible, and if you have pesky credit cards, be sure to cut them.

3. A secondary hustle begins

Regardless of your financial goals, making more money will almost certainly help you achieve them. According to a survey by Dollarsprout, nearly six in 10 Americans have a secondary hustle. Whether it’s walking dogs or starting an online store, you can earn extra money in countless ways, and a few thousand are more than enough to get you started in most of them.

The best part is, you don’t need to make a lot of money to make a big difference to your finances! An additional $ 500 per month dedicated to a specific goal can change your life. Imagine putting down an additional $ 500 per month for your debt. Or invest it; $ 500 per month invested at a 10% annual return will grow to more than $ 100,000 in 10 years.

4. Buy cryptocurrencies

Cryptocurrency remains a mystery to many people, but it has been proven to be an effective tool for generating wealth. Thousands of coins are traded on exchanges, but conventional cryptocurrencies like Bitcoin Y Ethereal they have become household names, as have first-class stocks.

Bitcoin price chart

Bitcoin price data by YGraphics

Each has produced tremendous returns in recent years. While no one can predict the future of cryptocurrency, it is still a young asset class that can be part of a diversified investment portfolio. Investors should be wary of “meme” cryptocurrencies like dogecoin.

5. Invest in the stock market

The stock market remains one of the oldest and most reliable means of generating wealth. The S&P 500, which tracks America’s 500 largest companies, has averaged about 10% each year since the 1920s. Several funds track the S&P 500, such as the Vanguard S&P 500 ETFin which you can invest.

You can also create a portfolio of individual stocks focused on whatever investment strategy you are comfortable with. Looking to maximize your returns and can you withstand some volatility? Growth stocks can produce life-changing returns. Want a passive income stream that can pay your bills? Dividend stocks are the way to go.

Make better use of your tax refund

A tax refund may feel like free money, but in reality, the government took too much and is simply giving you your own money back. Rather than spend it frivolously, take the opportunity to improve your finances, and in the long run it will probably make you much happier than a new television or a weekend trip.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position for a premium Motley Fool counseling service. We are variegated! Questioning an investment thesis, even your own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.

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