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How Should I Invest My Tax Refund? 20 Cool Ideas

Written by By ICG Digital | Apr 27, 2022 1:17:00 PM

Let’s set something straight. No one likes paying income taxes. When we see our pay stubs with income tax deductions, we all feel the same pain. However, we also cannot deny that income tax is necessary for the normal functioning of a country. Luckily, people who invest smartly can save on taxes, and those who receive an income tax refund have options on how to spend the money efficiently.

The people who use this refund wisely can quickly achieve their savings and investment goals early on. If you have just received the income tax return in your bank account, here are a few ways you can use them effectively. 

 

20 Ways You Can Use Your Tax Refund Smartly

Create an Emergency Fund

Creating an emergency fund is inarguably the MOST critical investment strategy for an average individual. The COVID pandemic gave us a valuable lesson on how living paycheck-to-paycheck is not sustainable for the long term. Studies show that nearly 64% of Americans live paycheck-to-paycheck in 2022! An easily accessible liquid fund containing 6 to 12 months of living expenses can help you make that much-needed career shift or survive a job loss easily.

Pay off the High-Interest Debt

A high credit card debt attracts unnecessary penalties and interest if not paid correctly. So, when you have finished setting up your emergency fund, it is time to pay off these high-interest debts first.

Prepay Your Car Loan

Did you know that you can use income tax returns to prepay your car loans quickly? You can use the lump-sum amounts received as federal tax refunds directly to pay the principal component of your car loan

Prepay Your Mortgage

Similarly to the car loan, use the tax returns to pay your mortgage. 

Invest it Towards Your Retirement

A study showed that nearly  13% of Americans 60 years or older did not have retirement savings to fall back on in 2020. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. By investing towards your retirement early on, you will reap the benefits of a peaceful life later. 

Invest in Stock Market

If you understand the risks and rewards associated with the stock market, investing your earned income tax credit in the markets may be a good idea.

Create an Opportunity Fund

You also have the option to use the individual income tax refund as a lump-sum amount to open an opportunity fund and invest in real estate

Start a Business

Do you think you have a great business idea but don’t have the financial risk of investing in it? This might be a time to put your income tax return to good use! Reach out to us if you need help with payment processing while setting up a new business.

Create a Will

Individuals close to their retirement years can save this money as a testament or will for their children.

Buy Better Insurance Schemes (Health and Term)

The rising medical costs could ruin a person’s finances altogether. A Consumer Affairs study shows that nearly a quarter of adult Americans do not have active health insurance today. Investing in better health and term insurance schemes may help you prevent a rainy day.

Buy Better Life Insurance

You should also consider purchasing or upgrading life insurance with this amount, especially if you are still young. 

Invest for Passive Income

Warren Buffet once said, “If you don’t find a way to make money while you sleep, you will work until you die.” So, find ways to make passive income with this tax refund.

The internet possesses numerous trending ideas to research to make this “side hustle” as effortless as possible, from writing ebooks to creating a mobile app. After an initial investment with the proper plan, you may find extra cash flow by the next tax season. 

Save for an Upcoming Expense

Are you planning on taking an extended family vacation or buying that expensive TV? It might be good to save this money for the upcoming cost.

Start a College Fund

Ideally, you will receive the tax refund within 21 days if you file it electronically. However, it may take up to 42 days for paper returns to appear in your bank account. With rising college expenses starting a college fund for yourself or your kids early on may help you reduce the financial burden later.

Invest in Cryptocurrency

If your risk appetite is higher, you can also consider investing in cryptocurrencies.

Buy Things While They are Cheap

If you have already filed taxes for the year 2021, you will receive the refund soon enough. Depending on where you live and the time of year, different purchases will go on sale.

For example, just when the school year starts, usually all of the stores advertise sales on supplies from pencils to laptops. Across America, electronics typically go on sale. At the season’s close, the fashion industry puts its items on sale to make room for the next seasonal wear. Take advantage of bargain shopping deals to save money in the long term. 

Not to forget, it may be time to buy those December flight tickets for a Christmas vacation as soon as you receive the funds. Waiting until the deadline might drive up the prices. 

Spend it on Something You REALLY Want

Addiction to saving money can be nearly as devastating as spending it without self-control. So, do not hesitate to splurge a little on something that you REALLY want.

Pay it Forward

Tax preparers know this very well. You can earn tax benefits and make a difference in someone’s life by donating the tax refunds to a government-recognized charitable entity. iCG supports numerous nonprofit accounts with our Partner Program, setting them up to receive their funds with the least amount of merchant fees so the organization keeps almost all of their donations. Reach out if you’d like some direction based on your preferences.

Invest in Yourself

Do not forget to invest in yourself. The individuals who constantly learn and grow their skillsets outperform and earn more than their counterparts. The list goes on and on for growth possibilities. Buy some books. Get the Kindle subscription to have access to ebooks if you prefer.  Take a weekend to your favorite place to reset and focus on your next life moves.

Invest in Your Health

Thinking about joining your local gym, but the cost is too high? It may be time to look at tax refunds as a way to pay for that gym and eat healthier going forward. If you’d rather work out on your own, order that bicycle or treadmill you’ve eyed for a while. 

 

Conclusion

Investing the lump-sum tax refund money smartly helps you prepare for a rainy day and secure your future against uncertainty. Invest this money correctly,  but don’t forget to have some fun while doing it, too. If you receive less than expected or no tax refunds this year, it may be time to start looking at other investment options that help you save taxes for the upcoming financial year!

 

Date originally published: April 27, 2022