Did you get your tax refund yet? Don’t let the cash burning a hole in your pocket turn into a dent in your bank account. Read up on how some Americans waste their tax refund and learn about the best ways to invest yours instead!
1. Slash Your Debt.
One of the smartest moves you can make with your tax refund is to reduce existing debt like credit cards and student loans. If you’re carrying debt from one month to the next, interest continues to accrue until you pay off the balance! Applying your tax refund to even a small part of your debt can increase the amount of interest that gets added on to your total.
For example, if your credit card has an APR of 18%, your daily rate is around 0.0493% (APR/365). If you have a $10,000 balance from the previous billing cycle, your interest will grow by $0.493 on the first day of your new statement period, and it will continue to grow at that 0.0493% rate until you pay off the balance or your APR changes. Under these conditions, you could add $14 to the balance of your credit card debt in interest — just imagine how that could add up in a year!
Reduce your interest payments by using your tax refund to pay off part or ALL of your credit card debt — it can go a long way down the road!
2. Stay Away from the Casino.
You might be tempted to bet your entire tax refund at a casino, on a sporting event, or lottery tickets. Resist that temptation. You’ll probably wind up losing some or all of your money.
U.S. gamblers lost $117 billion on legal betting and another $150 billion on illegal betting in 2016, according to data cited by Debt.org. As Debt.org points out, “the odds are stacked high against you” when you gamble.
A less risky way to “gamble” with your tax refund is to buy stocks, bonds, exchange-traded funds (ETFs), or mutual funds. This alternative represents an investment in your future — and many investment platforms provide education and advice for first-time investors.
3. Set Up an Emergency Fund.
A 2019 survey by Bankrate.com found that more than one-fourth of Americans (28 percent) had no money put away in case of an emergency, such as a broken car engine or a surprise medical expense.
Experts recommend creating an emergency fund that equals at least three to six months of your income to help you weather unexpected bills or unemployment.
4. Don’t Throw Away Your Money.
Sure, it’d be nice to go on a shopping spree at your favorite clothing store or book a Hawaiian vacation after you receive your tax refund. But do you really need those clothes? And can you go on a less costly vacation close to home?
Think hard about how best to maximize your tax refund. That probably doesn’t involve shopping bags stuffed with clothes or a one-week stay at a beachfront resort in Maui.
5. Spend It on a Much-Needed Big Purchase.
The average federal tax refund issued in 2019 was $2,781. Imagine what you could do with that money — but don’t go wild. Instead, be practical.
Do you desperately need a new sofa (perhaps from CORT Furniture Outlet)? Is your refrigerator about to die? Is your car falling apart?
Your tax refund can be put toward a big purchase that you need! This kind of purchase is an investment, rather than a frivolous expense.
6. Don’t Just Park the Money in Your Checking Account.
If you’ve decided to hang onto your tax refund rather than spend it, be wise about where you keep the money. Generally, stockpiling cash in a checking account is not the best way to save!
While you should be applauded for wanting to save your tax refund, leaving it in your checking account will simply be an invitation to spend it. Before long, the entire refund could disappear.
A better option: Stick the money in an interest-bearing savings account. That money then can be put toward a special purpose (such as a college fund for your kids, an emergency fund, or an overhaul of your living room furniture).
7. Find Great Deals on Necessary Items.
Ready to invest your tax return in the furniture you’ve been needing for your home, but itching to find a great deal? Find high-quality, built-to-last furniture at your local CORT Furniture Outlet and avoid the sticker shock you’ve experienced at big-box furniture stores.