What to Do With Your Refund

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.

Ted’s Recommendation
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.

Ted’s Recommendation
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.

Save it

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.

Ted’s Recommendation
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.

Invest it

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.

Ted’s Recommendation
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.

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8 comments

  1. Very good post! For investing, I find peer lending to have potentially good gains. Like Lendup or Prosper. Even the Borrow subreddit allows you to make small loans to people and make money, much better returns than a stocks and bonds most of the time!

    Liked by 1 person

    1. Thanks for the comment!

      Peer lending is something that I find to be good and bad. On one hand, handing out a micro-loan to people you don’t know well can hurt in the long run. However, if they’re trustworthy, it’s a great way to earn a little interest.

      Like

      1. I now realize, after being in a midterm review, that you were talking about platforms for peer lending, which are much safer to do. Yeah, that’s a great idea that I wish more people would take advantage of.

        Like

    1. Thanks for the comment!

      Feel free to refer your customers to the article. Be sure to let them know that I will answer questions to the best of my ability!

      Is there anything you would add to a more comprehensive list?

      Like

      1. I like the paying-down of debts, especially when I can see that a customer also has a credit card or loan with us and it either has a huge balance or is getting late fees.

        Another idea could be a Certificate of Deposit. With a wide choice of time lengths, it could be one way of setting aside money and letting it earn some interest.

        For people who might want a paper savings bond, there are Series I bonds which you can get (in $50 increments) with a portion of your tax refund. There’s a form (I can’t remember which form #) you can fill out to designate how much you want in I think up to three bonds, then the rest can be sent to you in the normal method of check or deposit.

        I’ll likely be sending my refund straight to my next tax estimate.

        Liked by 1 person

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