Effective Strategies to Invest Your Tax Refund

 

Did you get a tax refund this year? You are not alone. Many Americans love getting a tax refund each year. A tax refund is the amount of money you over pay in taxes in each year. However, a tax refund is just another way to help the government make money. The money each taxpayer pays during the year is placed in a high interest bearing account and the government keeps the interest. The money given in a tax refund is small compared to the money the government earns each year from the millions of taxpayers in America.

There are only a few instances when you should overpay your taxes; if you want to use the extra money to pay down debt during the year or if you believe you will owe taxes at the end of the year. If you work hard all year long, why do you wait until the end of the year to get back money you earned? Get your money upfront by adjusting your tax withholdings. Consult an accountant to make sure do not end up owning money at the end of the year.

If you are struggling to pay bills or need to get out of debt your tax refund can be a lifesaver. However, it is up to you to determine how to spend it. If you do not come from a wealthy family, you are the only one you can depend on so make wise choices with your money because no one knows what the future holds. It is easy to get in debt and stay in debt, swipe that check card or credit card and ignore the bills. It takes courage to look at your situation and make a decision to do better.

I was $19,000 in credit card debt after graduating college earning $21,000 a year at my first job. I lost my job and was unable to make the minimum monthly payments. I was hired for another job but it took me four years to pay off all of my debt. It was the hardest four years of my life but I learned valuable lessons that a bankruptcy lawyer, credit counselor or financial advisor could teach me. I learned the hard way and those lessons were never forgotten. Remember what your grandparents said and save for a rainy day. Here are four ways to use your tax refund wisely.

Invest $500      

• Buy a mutual fund, some allow you to start with as little as $50 a month
• Open a discount brokerage account and buy individual shares
• Open an IRA with a low expense ratio under 1%
• Open a CD, higher interest rates can be found with online banks or longer CD terms (1-5 years)
• Open an online high interest money market account that has no fees or minimum balances
• Open an online interest checking account that earns 2% or more
• Participate in a DRIP (dividend reinvestment program) to buy stock directly from companies and automatically reinvest the dividends earned from the stock
• Join an investing club, they usually charge a membership or annual fee to join 
• Pay down debt 
• Start a savings account to cover monthly bills and expenses from 9-12 months

Invest $1,000  

• Start a savings account to cover monthly bills and expenses from 9-12 months
• Invest in an exchange traded fund or buy individual shares of stock
• Buy municipal bonds with at least BBB rating 
• Buy 100 shares of a stock priced at less than $10 or buy 50 shares of a stock priced at less than $20, etc. 
• Invest in a mutual fund 
• Contribute to your retirement account

Invest $5,000

• Open a 529 college savings plan
• Invest in a low-to-medium-risk mutual fund
• Invest the maximum in a Roth IRA ($5,000 per year)
• Buy municipal bonds with at least BBB rating

Invest $10,000

• Buy a franchise
• Invest in a profitable business
• Start a business
• Buy real estate