Your tax return came in or it’s on its way, now what?
There are many ways to invest your tax refund to maximize your return, for example; paying off high-interest credit card debt or investing in a college fund. One of these options could be the perfect fit for you!
1. Pay Off Credit Card
One of the first investments you can make with your tax return is paying off any high-interest credit card debt. In the long-run you will save the most money by tackling high-interest debt first! It’s the perfect opportunity to improve your finances. There are two methods you can follow when paying off debt; you can start paying off the debt with the highest interest and then move on to the next highest interest debt, or you can pay off the debt with the smallest balance and then work your way up.
2. Invest Against Future Expenses: Emergencies
Looking toward the future is always a smart move. Putting that $2000-$3000 tax return into a liquid savings account could save you from having to use your credit card in the future. Ideally, an emergency fund should consist of 3-6 months of income, but any emergency stockpile is better than none! Trust us, you’ll be glad you did when an unexpected car or medical bill occurs.
3. Fund An IRA
Open your own Individual Retirement Account (IRA), even if you have a 401(k) through your work, you’ll thank yourself later! You have two choices; a Roth IRA or a traditional IRA. With A traditional IRA you can receive a tax deduction on the money that goes in, but when the money comes out you will pay income tax on the overall amount. With a Roth IRA you won’t receive a tax deduction, but when the money comes out at retirement it’s tax-free.
4. Invest In The Stock Market
You’re a risk taker and you want the opportunity to win big! One option to consider is investing in the stock market. Due to its volatile nature, financial advisers recommend investing in the stock market as a long-term investment, for example, retirement. You can do this through mutual funds or individual stocks.
5. Fund College
Consider investing in a 529 College savings plan, especially if you’re a parent. Your investment will grow tax-free and as long as it’s used towards education you won’t owe taxes.
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