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How to invest your tax refund


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Getting a refund of taxes is like celebrating a late Christmas. But instead of spending money to be happy, you get money.

While there are many ways to spend your tax payment, there are also ways you can invest in yourself and your future. Here are some ways to invest your tax refund.

first Paying old debts

If you have struggled with old debts, such as credit cards student loans or medical bills, now is the time to pay them for good. If you are not sure which debt to pay first, consider the one with the highest interest rate. High-interest debt, such as credit cards, can be mixed through high interest costs, late fees and other penalties.

You can also use it to get current debts on late but not yet outstanding. For example, raise your electricity bill or pay in the amount of your student loan. The earlier you pay everything, the less burden you bear.

2nd Start (or build up) your emergency fund

If you just scrapped with your regular paycheck, you might not have extra money for an emergency fund. Fortunately, your extra cash can help. Use your tax payment to start an emergency fund. This can be a high-return savings account that you keep separately from your regular checking account. It's not an account that should be dipped in often ̵

1; unless there is an emergency – but you should have easy access to it.

If you already have an emergency fund, this is a good time to give it a boost. An emergency fund should consist of expenses for three to six months, which is different for everyone. If you do not think you would survive financially if you missed a paycheck, add your tax refund to your emergency fund.

3rd Start Investing

Investments are different for everyone. It can be as small as micro-supplements through an app like Acorns, use a robo-advisor like Betterment or manage your investments yourself through an online broker like Robinhood.

Investing in your tax refund is a great way to increase your return. While a high yield savings account has APRs of up to 2%, the average return on the stock market is 10%. Although you can stand to lose money in the stock market, you can also expect serious profits.

Investments come in many different forms. Before registering with a company, decide if you are more of a hands-off investor (best for robo-advisors) or a hands-on investor (best for brokers). Also consider your risk tolerance and when you plan to spend your money. Equity market investment is best for long-term investments, or money that is not affected for at least five years. So if you plan to spend your investment money soon, you may want to consider other options, such as a savings account.

4th Contribute to your retirement account

Preparing for your future after your career is one of the most important financial contributions you can make. If you have a work sponsored 401 (k) plan and do not maximize your contributions, use your tax refund to do so. If you are older than 50, use the extra cash as a catch allowance.

You can also use it to start or fund your IRA. Whether you have a work-sponsored pension plan or not, you contribute to your IRA an extra cushion at retirement. The IRAs also have a catch allowance, which is good if you are 50 years or older and you do not feel confident that you have saved enough for retirement.

5th Starting (or building) your HSA

A Health Savings Account is a savings plan specially designed for health-related costs. HSA is a type of investment account, though they are called "savings" plans. If you have a high deductible health plan, you can open an HSA. HSA is triple tax free: Your contributions, income and withdrawals are not taxed.

7th Save for college

Whether you went to college yourself or if you want to get a head start on your child's education, use your tax refund to save for college. You have several options, such as a high-return savings account, an investment account or a 529 plan.

A 529 plan is specially made for college savings. But it works more like an investment account. Revenue grows tax-free and as long as you use the funds for education-related expenses, you are not on the hook to pay taxes on your withdrawals.

8th Invest in yourself

While college is a great self-investment, there are other ways you can use your tax return for a good cause. If the college is not on your radar, consider taking courses in an area or industry you are interested in. If you have been thinking about a career change, use your money to invest in that switch. If you need capital to start your own business, this may be your chance.

Also consider using it to give yourself a much needed break. Whether it is a holiday fund or simply money for a massage or spa day, your tax allowance can help you recharge, restore and refocus. It is easy to study other materialistic things, such as shopping for new clothes or shoes, but try to stay focused on what would improve your well-being in the long run, not a quick fix.

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