Spring is finally in the air! Amid all the blooming flowers, increased daylight hours and warmer weather, it’s also time for one of the nation’s least favorite chores: tax season.
But with the average tax refund clocking in at more than $3,000 so far this year, according to the latest data from the IRS, middle-income Americans may find filing their tax returns doesn’t feel quite so burdensome this time around. In fact, the extra cash is welcome news as many continue to struggle with righting their personal finances following the economic headwinds of the past few years.
While inflation has dropped dramatically since 2022, it is still above the level economists think is manageable. Moreover, the latest government data showed an uptick again in February. This recent about face is yet another sign that the economy is not quite out of the woods yet. And while grocery prices have largely leveled off, the cost of many food staples is much higher than two years ago. After a welcome, but brief, decline, gas prices are once again on the rise.
All that adds up to a complex situation for middle-income Americans, who are seeing improvements in their financial situations but remain hard-hit as a result of pandemic-spurred losses. It’s likely why nearly 70% of respondents in Primerica’s most recent quarterly survey said their income continues to fall behind the cost of living.
“With middle-income families still feeling hammered by persistent inflation, now is the perfect time to put their tax refunds — no matter how big or small — to good use and play a little catch-up financially,” said Amy Crews Cutts, Ph.D., CBE®, economic consultant to Primerica. “Inflation has made it hard for many households to keep up with their savings plan or debt management over the past two years. By using the extra cash from their tax refund to pay off credit card debt, shore up emergency savings or set aside more for retirement, middle-income Americans can take proactive steps to secure their financial future. It may seem daunting, but it doesn’t have to be.”
Here are a few ways you can put your tax refund to good use this year:
Pay off debt — especially credit cards
There’s almost nothing more crippling to your personal finances than a high balance on a high-interest credit card. Yet, Primerica’s latest survey found 80% of middle-income Americans are as concerned or more concerned about their credit card debt today compared to a year ago, and 66% don’t know the interest rate for their credit cards.
Carrying over a balance from month to month — even if you’re making the minimum payment — can cost you hundreds if not thousands over time. Paying off credit card debt — or any debt for that matter — is one of the biggest steps you can take to secure your financial future. Putting your tax refund to work tackling your debt will bring you one step closer to accomplishing that goal.
Build up your emergency savings
Emergency funds can help foot the bill when the unexpected happens, from costly medical or dental bills to urgent car or home repairs. Yet, Primerica’s recent survey found nearly 40% of middle-income Americans don’t have even $1,000 set aside for such a rainy day.
The inevitability of life is that it will throw surprises your way, including in the form of financial shocks. Setting money aside now means you won’t need to rely on credit cards or personal loans to handle the unexpected expenses that always seem to crop up at the worst time. Whether or not you already have an emergency fund, you may undoubtedly thank yourself later if you put some or all of your tax refund money into such an account.
Add to your retirement savings
One of the facts of life is that no one ever gets to retirement wishing they had set aside less money. And the longer you wait to sock more money away in your retirement account, the more you’ll have to pay each month to meet your needs later in life. This concept is called the high cost of waiting, and it’s definitely a price you don’t want to pay. Adding your tax refund to your existing 401K or other retirement savings account is a surefire way to give a boost to your retirement goals.
It’s often tempting to use a cash windfall such as a tax refund to go on a shopping spree but setting the money aside for a more financially responsible use will pay dividends and leave you feeling better about your financial situation in the long run. Plus, if you’ve fallen behind on those financial resolutions you set at the beginning of the year, now is a great time to revisit what you set out to accomplish.
Still, setting yourself up for financial success can feel daunting at times, and many middle-income Americans say they don’t know where to start. If you are looking for help, remember that you can always reach out to a financial professional, who can ensure you’re on the right path.
Disclosures:
- Primerica representatives are not financial or estate planners, or tax advisors. For related advice, individuals should consult an appropriately licensed professional.
- In the U.S., securities and advisory services are offered by PFS Investments Inc., 1 Primerica Parkway, Duluth, Georgia 30099-0001, member FINRA [www.finra.org]. PFS Investments Inc. conducts its advisory business under the name Primerica Advisors. Primerica and PFS Investments Inc. are affiliated companies.
- All investments involve risks, including possible loss of principal.
- This piece is for informational purposes only and is not a call to action. Consult with a financial professional before making any investment decisions.
