With the end of the tax season right around the corner, many people are expecting a sizable return. Hopefully you paid as close to what was required as possible, so you don’t end up owing money or get a huge return – which means you were overpaying all year – but that isn’t always the case. In this article I’m going to cover 10 ways to invest your tax refund! Each option may vary a bit based on how much your refund is, but all can be worthwhile to at least put your refund towards. Without further ado, let’s get into all the ways we can make the most out of our tax refunds.
Eliminate Remaining Debt
This is a quick and obvious use for your tax refund. You can put it towards tackling student debt, if you have any. Alternatively, you can use it for high-interest debt like credit card debt. Whether you’re using the debt snowball or avalanche method, the money from your tax return will give you a nice boost towards your goal of becoming debt-free. However, unless you have an unusually high interest rate for it, I don’t think using it for your mortgage is particularly useful.
In a way, when you pay off debt you are basically making a guaranteed return (whatever the total cost of interest would’ve been). That’s a great thing, but it may not be the most worthwhile on debt with really low interest rates.
Create An Emergency Fund
I’ve said it before and I’m sure I’ll say it again, but emergency funds are a must. Start off small. Save up one month worth of expenses. Build that into six months worth of expenses in a high-yield savings account, like Axos. It will take some time, but it’s worth it. An emergency fund can help you out when disaster strikes throughout your life. Plus, it will help you avoid being forced to take on more debt. Your tax refund might not fund the entire thing, but it can give you a good start or provide you with a little bit of extra cushion that you need.
Invest In The Stock Market
If you haven’t started yet, begin investing as soon as possible. In fact, start investing in index funds and ETFs today. Investing in the stock market is a classic way to build wealth, and it has proven to give investors amazing returns over the long haul. If you want to you can invest in the stocks of individual companies, but for most investors I suggest investing in index funds and ETFs. They have amazing returns and beat out most people who try to time the market or think they’re clever with their stock picks.
I’m not saying it’s impossible to beat index funds, but it’s hard and few do it. In other words, index funds and ETFs provide a pretty hands-off approach that generally give stellar returns.
If you don’t have a brokerage yet, use M1 Finance. Not only are they simple and straightforward, but they have lots of options for you. Don’t want to choose between so many options? Just pick one of their premade portfolios and instantly start investing!
Put It In Your IRA
For those of you who don’t know, IRAs are a tax-advantaged retirement account. I went over retirement accounts in great detail here. If you haven’t opened one, do yourself a favor and set one up with Vanguard or M1 Finance. Think of this as another way to invest in the stock market, but with more tax benefits. The only downside is there are potential restrictions on when and how much money you can pull out (without penalties), if you try to withdraw funds before retirement age. In my opinion, it’s worthwhile to max out a Roth IRA if you can, and then focus on other investments that don’t get the same tax perks.
Save It For Your Kids
If your needs are met, you can always put it away for your kids. Save it using something like a 529. If you don’t like 529s, there are several other alternatives, and you could even invest it in their immediate education. For example, you could use the tax refund to help teach them several skills they need in order to be successful with money. Whatever you do here is up to you, and I’m sure your kids will appreciate it in the future, but make sure you have yourself covered first.
Invest In Your Education
Alternatively, you could always invest in your own education! There are a lot of in-demand skills you could use to propel your career. If that isn’t up your alley, you could learn the skills required to start a lucrative hustle on the side. Of course, there is also merit in learning for its own sake.
Comment below what the one thing you wish you had learned was. A lot of us had something we wish we had spent more time on or picked up over the years. Don’t wait any longer, get started with whatever it is and share your progress!
Get Into Real Estate
Real estate is another great investment, like stocks. Unfortunately, real estate can take a bit of money to get into. Your tax return likely won’t be enough for a down payment, but it can be a huge help along the way. If you’re interested in real estate, check out my interview with a successful real estate investor. He likes to use rental properties to make income, but if you have the skills you could even flip properties! The sky is the limit with real estate, and it can ramp up your income, but the biggest hurdle is just saving up enough money to get into the field.
Start Learning With Acorns
If you’ve really enjoyed the idea of getting into the stock market, but you’re incredibly inexperienced with money, Acorns can help you out! It will help you automate some additional savings and invest it for you. It’s a great tool for beginners to learn with, and most people I know seem to really enjoy it – myself included. If you want more details, I wrote a full review a while back.
It’s not the perfect investment platform, but it is by far the best tool for beginners to get their feet wet and learn the ins and outs. Of course, once you’ve learned everything you need from Acorns, I suggest opening an account with M1 Finance, when you’re ready to really ramp up your portfolio.
Invest In The Community
I hate to sound cliché, but investing in the community is really worthwhile. Donating your tax refund can give you a huge sense of fulfillment, particularly if you are no longer pressed for money. So, if you’re stable and happy, seriously consider it! Donating to a good cause can help something that you care about, and it’s another aspect of your life to flesh out. Obviously, if you’re struggling with money, it’s not the time to donate yet. However, as a fun experiment, think about what organizations or causes you’d like to donate to in the future!
Try Crypto
Now, this is a hot-button topic and I know it. Tons of people are obsessed with cryptocurrency, and it is definitely an interesting market. If you want to start investing in it, use a platform like Coinbase for an easy interface and wide selection – but be wary about the cost of fees though. Unfortunately, investing in cryptocurrency can be highly speculative, and sometimes it is borderline gambling. I’m not suggesting you don’t do it, but it pays to be cautious. Don’t invest money you can’t afford to lose into cryptocurrency.
For example, as a general rule of thumb I like to limit my cryptocurrencies to only 5% of my portfolio or less. That may be conservative for some people, but I find that it lets me enjoy the returns without fretting when the markets go down.
Conclusion
To get the most money back when you file your taxes, I recommend using TaxAct. In the past, TaxAct has saved me a ton of money compared to its competitors. If you have any other advice for what to use your tax refund for, let us know in the comments. If you’re interested in more content like this, sign up for the Bitter to Richer newsletter to stay up to date on all of it. Additionally, we’ll send out a free financial goals worksheet and budgeting template when you sign up today!
