This, of course, means that after fighting through the long, hard and archaic process of filing their taxes, they get a “reward”. Today, we are here to discuss what you can do with this reward – from an investment perspective.
Of course, buying the new iPhone or spending it all in one day are valid options, but you could get a well-needed head start on battling your debt or increasing your investments. Essentially, this is free money – which you never budgeted to spend. You won’t feel a great sting by investing it, so you should definitely go for this route. If you’re convinced to invest but don’t know where the impact will be greatest, here are some ideas:
1. Tackle your largest source of debt
If you have a high-interest credit card, paying off the entire balance or a part of it can yield the greatest results in time. Credit card companies usually charge interest between 10% and 29% for these balances, so paying one of can give you far better returns that most investments. Taking a large swing against this debt will save you hundreds of dollars on the long term.
2. Setting up an emergency fund
This should be your first investment objective after you’ve ditched high interest debt. The book says you should always have living expenses for 6 to 9 months saved up in case of unexpected circumstances, like losing your job, medical bills or car breakdowns. Using your tax return here is also a wise choice.
3. Stash it in your 401(K)
After the above variants are done, you might consider investing for retirement. You can use this opportunity to setup a traditional or Roth IRA account, if you don’t have one. Carefully check if your employer can also help you with this – chances are there are some great benefits to opening such an account.
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4. Real estate
Saving up for a home can be seen as a long-term investment, so saving your tax return in order to have a down payment available can be a very smart idea. The sooner you save up this lump sum, the quicker you’ll own your own home.
5. Other investment vehicles
If you’re well setup in all the above categories, you could look into other investment opportunities – stocks, bonds, mutual funds, foreign exchange, commodities, futures, you name it. Remember to develop a balanced portfolio which you can easily understand and analyze at any given time.
These are just a few of the ideas we have for using your tax refund for investing. If you want to learn more, share this list on social media in order to find out how your friends and followers used their tax returns – aside from receiving lots of pictures with gadgets and holidays, you might receive some good ideas. Even thinking about investing this tax refund is a great idea – why not share it and inspire more people to take control of their financial destiny?
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