Tax time is in full effect! It is easy to tell by the constant social media statuses ranging from just filed my taxes to heading to the mall with my refund check and even others suggesting what you should do with your tax refund. Ultimately, what you do with your 2017 tax refund is up to you but I want to help you make the most of it.
Check out these 7 ways to invest your 2017 Tax Refund.
Repair your Credit Score
The first way to invest your tax refund is to repair your credit score. Your credit score is important because it can affect so many other areas of your life. Your credit score can impact your chances of getting a mortgage, car loan or even business funding. If your credit score is not considered “good” or “excellent”, then banks are not as willing to lend you credit and/or the credit comes at a much higher interest rate. A higher interest rate relates to thousands of dollars when purchasing a vehicle and hundreds of thousands of dollars when buying a home!
Good News though! It is not too late to repair your credit. The first step is pulling a copy of your credit report to see how much work needs to be done. Once you pull a copy of your credit report, you can see the whole picture and work on getting your credit in shape.
Pay Off High-Interest Debt
The second way to invest your tax refund is to pay off high-interest debt. High-interest debt is typically credit card debt or any other debt that carries an interest rate of more than 10%.
According to a recent survey on Bankrate.com, nearly 30% of the population has more credit card debt than savings. Paying off high-interest rate credit card debt will save you so much money in the long run. If you do have credit card debt, take a look at your most recent monthly statement. How much of your monthly payment is wasted on interest? The faster you pay off that credit card debt, the faster you can let the wasted money work for you in investments.
Related: 8 Strategies to Pay Off Debt Fast
Increase your Savings Account
Do you have a goal that you have been aggressively saving for? If so, consider putting part or all of your tax refund into your savings account. Your saving account will earn a high percentage of interest than your checking account will. In addition, with rates on the rise, you may be able to get a decent interest rate percentage. If you don’t already have a savings account, use part or all of your tax refund to open a savings account at a local or an online bank. The initial savings account can help you start your emergency fund!
Related: 4 Best Apps to Automate Saving
Fully Fund your Emergency Fund
An emergency fund is 3 to 6 months of net income set aside when an emergency arises. Although 3 to 6 months of net income can seem like a lot of money to save at once, if you start with a lump sum like your 2017 tax refund it will speed things up. Starting or further funding an emergency fund today will save you from charging a financial emergency on a high-interest credit card.
Related: 5 Reasons you Need an Emergency Fund
Invest in you & your Families Health
Although I discuss financial wellness quite a bit, physical health is just as important. Your tax refund could be the chance to invest in your families health. Does everyone in your household own a bicycle? If not, use this opportunity to purchase bicycles for the family. You can make a regular weekend habit of riding bicycles with your family. A bicycle is just one of many ways to invest in your families health. Does everyone in your family know how to swim? Have you always wanted to start a garden in your yard but never had the time or money? It will pay off 10-fold in the long run.
Contribute to your Retirement Account
Did you know that the average millennial is going to need between 1.8-2.5 million dollars to retire! That fact alone should make you want to start contributing or increase your contributions to your retirement account. The power of compound interest works wonders. If you are interested in opening an IRA but not sure where to start, visit your local bank or try an online investment provider.
I applaud you if you already have an IRA account and contribute to it regularly. If you have not fully funded your IRA account, what is stopping you? Take the tax refund and contribute the maximum amount to your IRA ($5500 if you are under 50 years old).
Open a Taxable Investment Account
If you already have excellent credit, little to no debt, an emergency fund, and a fully funded IRA account, then it is time to start (or continue) investing! Investing is one of the best ways to create wealth for generations. There are many ways to start investing. Check out your local bank or try an online service like Acorns.
Invest in Yourself
The most important thing you can do for yourself and your future is to invest in yourself! Investing in yourself can take many forms. If you have been wanting to start a business or website, use the extra finances to take that leap. If additional training or certification would make you an expert in your field, invest in the class or test to make that happen. When taking care of financial responsibilities never forget to invest in yourself!
Bonus: Receiving a tax refund isn’t necessarily a good thing. Receiving a tax refund typically means you overpaid your share of your tax burden over the year. Therefore, it isn’t like you are receiving “free money”. You are just getting back your own money without being paid interest. Some like to think of it as an interest-free loan to the government. Consider adjusting your W-4 withholding to receive additional money back from each paycheck and less of a tax refund.
How are you going to invest your 2017 Tax Refund?
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