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How to best invest your tax refund

How to best invest your tax refund

Awaiting your tax refund every year is a very exciting time. The possibilities seem endless…you may be thinking of a big trip, new shoes, or a big dinner out on the town, but before you already have it spent in your mind, think again. When that trip is over or you’ve eaten that meal, the money is gone. Instead, re-invest it in a savings or retirement account for a much bigger pay-off later.

Add to Your Emergency Fund

It’s time to stop living paycheck to paycheck and start building up a nest egg. Bankrate says to have between nine months and one year saved in an easily-accessible account in case of emergency. At tax refund time, collect that money and put it away. You don’t want to be left holding the bag if you’re ever laid off or need to make a major house repair.

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Pay off Credit Cards

According to Kiplinger’s, the average refund is about $3,000. Put it all – or at least a good portion – towards paying off debt. If you pay off a balance on your credit card carrying an 18 percent interest rate, this is equal to getting 18 percent back on your investments, which is the best use of your money. Pay the cards off, in the order of the highest interest rates, but either close them or cut them up so you avoid adding more credit card debt going forward.

Save for College

If you invest wisely for your kids’ college, you can double your value for future college tuition by saving in a low-cost 529 college savings plan. With a five percent rate, if you invest $3,000 now, you could have $6,000 in 15 years, says CBSNews. It’s smart to have this cash easily available in low-risk bonds or cash when your child is in high school. That’s because the college tuition bills will start coming in sooner than you think and you have to be prepared.

Pay Down the Mortgage

If you like the sound of freeing up your money to work for you in retirement, work toward paying your mortgage off sooner rather than later. If you head into your 50s with no mortgage, you’ll be sitting pretty! Go ahead and travel and have a great retirement because you won’t be saddled with big mortgage payments.

Get into the Stock Market

If you are considering a few companies to invest in, do your research and buy shares in mutual funds and stocks that may pose a bit more of a risk than you would have considered for your IRA. USAToday says you could double your tax refund money in 10 years by investing in an index fund that invests in large-company stocks with posted gains of nearly 10 percent over the long haul. You could end up with $6,000 instead of the initial $3,000. Just be sure to call a trusted securities litigation lawyer to protect yourself.

Joseph Herrera

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