It’s a time of the year where Millions of Americans have started getting their tax refund checks. Just like it will have similar effects on you, these refunds are proving too hot to stay in everyone’s pockets. Bookings for vacations are doubling in numbers; some people are buying their “dream” TV screens, tattoo artists are all smiles as hordes of humanity flock their shops-they are working round the clock.
Well, this is a different year, and you don’t have to be like everybody else. You can choose to invest instead of taking new tattoos, don’t even think of a new car, not just yet.
There is an expectation of $2,840 on average for the federal refund for the 2018 filing season. However much you get back, this makes the best season that you must look to start building your investments.
Why are we saying this? Today, many of the online platforms have and are still springing up and are democratizing the process of investment. It’s even more comfortable as you no longer need thousands of dollars to create a brokerage account.
Elite Personal Finance, through extensive research; have presented you with some insightful tips that can help you turn your refund tax into investments. Have a look:
Come up with a Tax Deduction
Here, one uses his or her tax refund to create another refund for the coming year. If for example, you’re in a 35% joint marginal tax bracket (say, 27% for federal and 8% for your state), you can decide and create a $1,050 refund for the coming year through placing a $3,000 return in a tax-sheltered traditional IRA account today.
This way, you will be compiling your tax refund for the coming year before we’re halfway into the year. In that case, anything added on top of this is a bonus in waiting.
Additionally, the cash in your IRA gets to grow on a tax-deferred basis. You have an option of investing it in such a way that it will increase to many times your first investment, if you are willing it to last, say a decade, you are looking at some tremendous.
Make Investment in a Standard &Poor 500 Index Fund
“What Is the S&P 500 Index?”
The S&P 500 or Standard & Poor’s 500 Index is a term used about the market-capitalization-weighted index of the 500 top companies that are traded publicly in the U.S. The index is considered by most as the best measure of large-cap U.S. equities. Some of the typical U.S. stock market benchmarks include but not limited to the Dow Jones Industrial Average or the Russell 2000 Index. Russell 2000, for instance, represents the small-cap index.
If you go back the years (six decades), you will find that the S&P 500 index has given a yearly rate of return on the order of 11% averagely, this includes dividends. If you invest your refund, $3,000 for example, in a similar index fund, Vanguard 500 Index Fund precisely, an 11% yearly return could potentially turn your little investment into $24,187 in 20 years, remember you started at just $3,000. Wow! How about that? Just amazing, right?
Well, it doesn’t mean a rate of 11% return on your investment is a guarantee every year, however, you can expect to see an increment on an average effective rate over such a long period (decades).
Without a doubt, one of the attractive aspects of an index fund is it’s “double” effect-it’s low cost and tax effective
Make it a Personal Career or Business Investment
Most if not all of us think of investing as putting money into the conventional investments like buying stocks, real estate business, mutual funds…name them, the best investments however are those that you make in yourself, also “self-investment.” What do we mean by that? If you have been thinking of taking a course or a study as a way of expanding your knowledge or acquiring a certificate, then your tax refund offers you the best cash that can help you achieve that quest.
At the same time, if you have a business or a business idea and there’s some piece(s) of equipment you need to add to the fold so that there’s an increase in your productivity, then your tax refund is the best of the much-needed capital.
Whichever of the two that you shall have chosen could potentially be the step that allows you to elevate your business or career a notch higher and subsequently boost your income going forward.
I’m pretty sure that if you are reading this, it’s evident that this is one of the best investments you can potentially think of and make.
Pay Off those Small debts you Owe
Nobody must crucify you for seeing your tax refund in terms of spending. However, how about looking at it this way- a way of paying those debts that you owe in the past?
If you have massive debts to deal with, you will realize that a tax refund of $3,000 is not such a large amount of money. However, this little bit shall help offset that large amount that is proving hard to clear.
A typical credit card, for instance, has a monthly payment equivalent to 2% or even more with the outstanding balance as the reference. Therefore, when you pay off some, you put yourself in a position to increase your cash flow by up to $60 each month.
Let’s argue that you owe a car loan with a remaining balance of $6,000 to clear and you have 12 payments. By paying $3,000, you shall have cut the outstanding balance halfway. As much as it might not offer an immediate relief on your car loan payment, in a few months, you have felt the relief.
As I wind up, it’s crucial that you carefully think about what you intend to do with your tax refund. You can choose to spend it on some leisure activities. Also, you can opt to spend it in areas that will make better your financial situation, a short and long term solution, the choice is yours!