Who says tax time can’t be a little fun? After you file your taxes, the best part is the refund, but how do you make sure you’re using that money wisely? Sure, using it for an impulsive purchase will feel good in the moment, but what will feel best in the long run? Here are five smart ways to invest your tax refund money.
- Pay Off High-Interest-Rate Credit Card Debt
We know that some debt is smart to keep, but this type of debt is not one of them. Credit cards with high-interest rates end up costing you a lot in the long run. It’s smart to get rid of this kind of debt, and it’s smarter to use your refund for this type of debt over mortgages or student loans since the interest rates for those are much lower.
- Meet the Match on Your Workplace 401k Plan
Plan for your future by investing in it. Match your employer’s contribution to maximize your benefits.
- Prepare for Future Expenses and Emergencies
The tried and true rule is to have three to six months of living expenses saved for emergencies. But if you don’t have that in liquid cash, your refund is a great way to help bolster that fund. Or if you do have that fund already created, why not use part of it for fun by saving for a future vacation? By offsetting some of the bigger expenses in the future, you’ll be able to focus on other goals on your financial journey.
- Invest in an IRA
If you’ve already maximized your employer 401k contributions, investing in an individual retirement account (IRA) is another great option. One important thing to know is the difference between a Roth IRA and a traditional one. You receive a tax deduction on the money that goes into a traditional IRA. It grows tax-deferred, but you pay income tax when you pull the money out. With a Roth, there’s a tax deduction today — but when you tap the account in retirement, you tap it tax-free.
- Invest in your investment portfolio or start one!
The stock market has seen tremendous growth in the past year. You also may want to balance this with bonds. Either in individual securities or funds, invest for the long term for your financial independence.
One more tip: Use a portion of your refund for some fun! Reward yourself. You want planning for the future to be a joy, not a chore. Go out to dinner, see a show or buy yourself something special. Then save the rest!
For more tips on how to smartly invest your tax refund, visit tswealth.com.