It’s tax time! Thankfully these days submitting a tax return is super easy for most people. And a lot of you will be getting a nice little tax refund. So what are some smart things you can do with your return? I’ve put together 5 of my ideas, let me know in the comments if you have any ideas of your own.
Investing a lump sum will really give your savings a boost. The sooner you build up your savings the sooner you’ll start noticing compounding doing it’s magical thing. I use two apps for investing, both of which I think are pretty decent. Spaceship Voyager and Raiz. They both let you start investing with as little as $5, so no matter how small your refund is, you can invest it.
Both these apps will invest your money in a diversified portfolio of stocks and bonds. Remember, simply putting money into a savings account isn’t smart in the long run. Thanks to record low interest rates, your money won’t grow as fast as inflation meaning it’ll be worth less and less every year. And investment like Raiz or Spaceship is designed to help you beat inflation and grow your wealth.
Pay off your Debt
It’s not very sexy but one of the smartest things you can do with a tax refund is pay off debt. Interest is really good at keeping people poor. The sooner you get rid of debt the better. So while it might not be a lot of fun, paying off your credit card debt will help you in the long run. If you have any high interest pay day loans, then you should absolutely be paying those off as your number one priority.
Add to your Emergency Fund
An emergency fund is a smart way to buffer yourself from unexpected expenses. In an ideal world your emergency fund should be 3 months of expenses. But let’s be real, there aren’t many of us who can afford that. I think a good target to aim for is one months rent. For most people, this will be enough to cover any unexpected bills or expenses.
Make a small crypto purchase
If you want to take on more risk for potentially higher upside than a small crypto purchase with your refund could be a smart move. Remember that investing in cryptocurrencies is still very risky. While I believe that one day, crypto will be how most of us store wealth, it’s still early days. So just remember to only invest what you’d be happy to lose. Platforms like Coinbase or Coinspot let you invest with as little as $10. While I’m not sure investing in crypto right now is considered “smart”, if it does reach new all time highs, then you will certainly seem smart if you invested here.
Set it aside for end of year spending
I tend to spend more at the end of the year. Christmas gifts, end of year drinks, holidays etc…. it adds up fast. So why not put some money aside earmarked for the end of the year. Many bank accounts will let you set up sub accounts which can be used for putting money aside.