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How you can invest your tax refund



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

Although there are many ways to spend your tax refund, there are also ways to invest in yourself and your future. Here are a few ways to invest your tax refund.

1
. Pay old debts

If you are struggling with old debts, such as credit cards student loans or medical bills, this is the time to pay them off for good. If you are not sure which debt to pay first, consider the one with the highest interest. Debts with a high interest rate, such as credit cards, can incur due to high interest charges, late costs and other fines.

You can also use it to get notified of late but not yet outstanding debts. For example, catch up on your electricity bill or pay the principal sum of your student loan. The faster you pay for everything, the less burden you carry.

2. Start (or build) your emergency fund

If you have just visited with your regular salary you may not have the extra money for an emergency fund. Fortunately you can help extra money. Use your tax refund to start an emergency fund. This can be a savings account with a high return that keeps you separate from your regular checking account. It is not an account that often needs to be submerged – unless there is an emergency – but you must 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 must consist of three to six months costs, which is different for everyone. If you think you will not survive financially if you have missed a salary, submit your tax refund to your emergency fund.

3. Start investing

Investing is different for everyone. It can be as small as micro contributions via an app such as Acorns, with the help of a robo advisor such as Betterment or manage your investments yourself via an online broker such as Robinhood.

Investing in your tax refund is a great way to increase your return. While a savings account with a high return has APR & # 39; s up to 2%, the average stock market return is 10%. Although you could lose money on the stock market, you could also expect serious earnings.

Investing comes in many different forms. Before registering with a company, you must determine whether you are more of a hands-off investor (the best for robo-advisers) or a hands-on investor (the best for brokerages). Also consider your risk tolerance and when you plan to use your money. Investing in the stock market is best for long-term investments or money that has not been touched for at least five years. So if you plan to use your investment money quickly, you may want to consider other options, such as a savings account.

4. Contribute to your pension account

Preparing for your future at the end of your career is one of the most important financial contributions you can make. If you have a 401 (k) plan sponsored by work and do not maximize your contributions, use your tax refund for this. If you are older than 50, use the extra money as a catch-up contribution.

You can also use it to start or fund your IRA. Whether you have a work-sponsored pension plan or not, contributions to your IRA give you an extra cushion when you retire. IRAs also have catch-up premiums, which is useful if you are 50 or older and are not sure that you have saved enough for your retirement.

5. Start (or build) your HSA

A health savings account is a savings plan specifically designed for health-related costs. HSAs are a type of investment account, although they are called "savings plans". If you have a highly deductible health plan, you are eligible to open an HSA. HSAs are threefold tax-free: your contributions, income and withdrawals are not taxed.

7. Saving for school

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

A 529 plan was made specifically for university savings. But it works more like an investment account. Income grows tax-free and as long as you use the money for education-related costs, you are not ready to pay tax on your admissions.

8. Invest in yourself

Although college is a great investment, there are other ways to use your tax refund for charity. If you are not studying at the university, consider taking courses in a field or industry in which you are interested. If you are considering a career change, use your money to invest in that transition. If you need capital to start your own business, this could be your chance.

Consider also using it to give yourself a much needed break. Whether this is a vacation fund or just money for a massage or spa day, your tax refund can help you recharge, reset, and refocus. It is easy to dive into other materialistic things, such as shopping for new clothing or shoes, but try to stay focused on what would improve your well-being in the long run, not a quick solution.


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