How you can invest your tax refund and double it.
Yes, it is tax time once again! Some of you will get a huge tax refund this year and you may already have plans for that brand new 65 inch Samsung TV. If this is you, pause and think twice before you indulge in unnecessary purchases. Put your tax refund to work and get double or triple the initial investment.
You may be thinking, ‘This guy is crazy. What can I get out of $1,000…’
While $1,000 is not $1,000,000, you need to understand you have to start somewhere to get somewhere. And the sooner you start the sooner you will start reaping your returns.
Maybe you are wondering, ‘Can this happen overnight?’ No! This is not a get-rich-quick scheme. To have financial returns you have to put in the work, energy and time. Yes, I know. We all want the easy way, but nothing comes easy.
Before you carelessly spend your tax refund, remember that is your money you overpaid to the IRS in the previous calendar year. It is not free money from the government.
“Just because you don’t have much money to invest doesn’t mean you shouldn’t invest it.”
This is how to double or triple your 2020 tax refund.
1. Pay down your debt
You cannot start investing while you are still in debt. You need to pay off all your debt first. If you are in debt, plan to use your tax refund to pay down your debt. You may be wondering how this will double your return. Well, you haven’t done the math. If you did you wouldn’t be in debt in the first place. You may not see tangible results but you are saving yourself a lot by paying down your debt. The interest you could be paying on that loan or credit card balance will be staying in your pocket. Put this money away in savings every month and you won’t believe how much money you have been throwing away to credit companies.
2. Have a budget
Do you have a budget? If you don’t then high chances you won’t know where your tax refund will go this year. Do you have a plan for your tax refund? You need to know exactly what’s going on with your finances at any given time. With a budget you know that your necessary expenses are covered and your savings are on track. Let’s be honest, if you have no plan with your money you end up spending blindly because you don’t know where to put your money. Many people who live paycheck to paycheck always wonder where their money goes. But they never sit and think why. It is a lack of budgeting. Some of these people actually make a lot of money. So does getting a tax refund make anything different? No. Budget and you will know exactly where your money goes and invest any left over to get a double or even higher return.
3. Open a Roth IRA or 401(k) account
If you don’t have a retirement savings account yet, open one. If you do, keep up the good work and keep investing.
What is the difference between a Roth IRA and 401(k)?
A Roth IRA is a tax-advantaged retirement savings account that allows you to make contributions with money on which you’ve already paid taxes. You’re able to withdraw your contributions tax- and penalty-free at any time, for any reason. However, a 401(k) is a tax-deferred retirement savings account that allows you to make pre-tax contributions thus reducing income taxes for the year they are made, but withdrawals are taxed.
I’m 25. Why should I worry about retirement now? Well, it is stealthily coming, and before you know it you will be 50 with no retirement savings or investments. Why? Because you always thought you are too young, or you don’t make enough to save, or life is too short to deny yourself pleasure.
You know what you can do with your tax refund this year? If you have your debts paid off, and a budget in place, if you don’t have a retirement savings account yet, open one. Put your tax refund in that account and watch it start earning interest over time. If you do this every year, you will retire wealthy and never have to worry about your finances.
4. Open a High Yield Savings Account
Having money in the bank that yields little to no interest is useless. You need to make sure your money works for you. What you could do with your tax refund this year (or every year) is put it in a high yield savings account.
Why not your regular savings account?
The main difference between a high-yield savings account and a regular savings account is that high-yield savings accounts earn up to 20 times more interest, with interest rates generally between 1.5% and 2.5%. Regular savings earn about 0.01% interest. Therefore, high-yield savings are almost always a better choice than traditional savings for storing liquid cash, especially for an emergency fund or a house down payment.
Some great options to consider are:
- HSBC 1.85 APY
- Citi 1.85 APY
- Credit Karma 1.80 APY
5. Start Forex or Stock trading
How much do I need to start trading?
Most people including myself always ask this question. The misconception is people think you need to have thousands of dollars to start trading stocks or Forex. With that being said, you need to know what you are getting into. Don’t invest in something you don’t understand. Just because your friends are doing it and are making money doesn’t mean you should dive right into it. Educate yourself first, especially in an investment such as stock and Forex trading. Just as it is easy to make money, it is easy to lose money as well.
With knowledge in trading, you could use your tax refund to get started and start seeing your money grow.
There is no one get-rich-quick scheme out there. Using the little money you have wisely over time will lead you to financial freedom. Have a good plan and double your tax refund this year.
