It’s that time of year again: Tax season! Many of us will receive tax refunds and spend it right away. However, there’s more to what you can do with your tax refund than just go shopping. Maybe you would like to go on a mini vacation or pay down debt. Maybe you would like to invest it in something. Today, I’m making some recommendations as to what I would do with my tax refund.
According to the IRS, the average tax refund is $3,150. Hence, all examples given will be with that amount.
Pay Down Debt
Do you have a new phone that you’re making payments on? Maybe you have a car that you’d like to pay off quicker. Whatever it is you’re wanting to do, paying down debt is always a great thing to do. It can lower monthly payments on phone bills, relieve stress, and improve your credit score.
I would pay down a credit card or the principal on a car loan. If you have a car loan, find out what the maximum allowed monthly payment is. This sounds a little strange, but even Wells Fargo only allows up to $600 per month. Assuming that one had a $232 payment each month, anything you add on top of that pays down the actual amount you owe. If you wanted, you could add $200 for 15 months and do some serious good to your loan.
If you go the credit card route, then anything you pay towards that is going to help in the long run. Even if it’s been charged off, someone will want to negotiate the repayment with you. It’s best for your credit to get these paid off ASAP. It will affect you at some point whether you’re applying for a job or a loan. Even if it’s in collections, see if the original creditor will negotiate with you.
Go on a Mini Vacation
Something we should all ask ourselves is how much of our states or regions have we actually seen. I’ve lived in the Pacific Northwest my entire life and have seen so little of it. I love the outdoors and exploring new places in Oregon. The nice thing about a mini vacation is that you don’t have to be gone for longer than a few days. Just make sure you have everything you need before you leave.
Plan a trip that you’ve never been on before, even if it includes areas you’ve previously visited. For example, I’ve been to many parts of the Oregon Coast. But I’ve never done a trip along Highway 101 along the Oregon Coast from Astoria down to Bandon and below. There are plenty of resources that suggest great road trip routes. I would suggest checking out Airbnb for cheaper lodging options.
There are plenty of opportunities to save money. Honestly, I will never pass judgments on anybody who needs to spend their refunds on bills or to pay down debt. However, if you can’t think of anything better to do than to just spend it on frivolous items, might I suggest you save it? You might be wondering why a savings account is worth it these days. I agree with you to an extent. 0.05 percent APY is not a whole lot. After all, they do divide that by 12 when paying you interest at that rate.
This would be a great opportunity to look at your bank or credit union’s options for a money market account. Most financial institutions have them. A money market account is an account that pays higher interest rates than regular savings accounts and the money is accessible. The only catch is that you usually need a minimum daily balance to avoid fees or gain interest.
Need more convincing? Ally Bank can do that with their 0.85 percent APY money market account comparison calculator. Suffice it to say that I would rather earn $4.75 on $500 over 12 months than 15¢ over 12 months. Remember, the best way to continually save money is to make deposits often. You also earn more interest this way. Here is a list of some smart ways to save money.
Do you have an eye for the financial markets? If not, that’s okay. They have financial managers for that reason. Many will say that the stock market is evil and will cause you to go broke. This is only true if you’re not smart about it. There’s much more than just stocks, too. There are ETFs (Exchange Traded Funds), Mutual Funds, and Options. There are also bonds you could consider learning about. It all depends on risk level.
There are plenty of resources to help people learn how to invest their money in the market. Investopedia is a great place to start. TD Ameritrade is an investment company that I use whenever I invest anything. They not only have great platforms for trading, they’ve also got great financial market education resources for their users. This way, even the most novice of investors can learn how to trade like the pros.
DISCLAIMER: Ted Yanez is not a financial advisor and is not giving official financial advice. This advice is purely circumstantial and for entertainment purposes. Ted Yanez is not responsible for any money lost from following this advice.