It’s tax season. Yep. April 15th is THE day. Even with sites like TurboTax, Tax Act, and H&R Block, we still have to sit down and fill out complex tax documents. (We are personally trying Tax Act and TurboTax and will have reviews up on the site soon.)
Things get extra complicated when you’re self-employed or own your own business.
But, with taxes comes one exciting thing—tax refunds!
Just remember . . .this is an interest free loan to the government. So, make sure you take steps to minimize your return next year. You would rather have that money to invest THIS YEAR.
We used the 80/20 rule for our tax refund last year. We tossed 80 percent in our Betterment account and spent 20% on our anniversary vacation trip to Central Texas. If you have ideas on how to spend your tax return, leave those ideas in the comments.
This tax season, be rational and use your tax return to do one (or more) of these five things.
1. Apply for a secured credit card
If you’re looking to build credit, getting a secured credit card can help you improve your credit fairly quickly.
A secured card works like a traditional credit card, but you must put down a cash deposit before you can make charges. In most cases, that deposit becomes your credit limit. These cards allow those with less than stellar credit to apply for and receive a credit card. Since you put a cash deposit down, you are insulated against excessive spending.
Some cards offer a higher limit with a lower down payment if you have somewhat decent credit. The Capital One® Secured Mastercard®, for example, offers a $200 credit line if pay a down payment of $49, $99, or the full $200—it all depends on your credit.
Since you’ll need to pay a down payment for the secured card, set aside your deposit from your return.
2. Put money towards your retirement account
This, of course, is one of the most responsible things to do with your sizable return. If you don’t yet have a retirement account, check out our other articles on investment accounts.
Whether you have an employee-sponsored 401(k), an IRA, or a Roth IRA, put some (or all) of your tax return towards your future.
If you have a 401(k), chances are you don’t really know what you’re doing when choosing how to invest your money. Most people simply guess, which is a good way to lose money.
But there’s good news: there’s a great young company that can help you invest your retirement plan: Blooom.
Blooom provides online 401k optimization, and automatically makes difficult investing decisions for you.
For more information on how Blooom can work for you, check out our toolbox review.
Whatever you do with your retirement, make sure you understand WHAT you are investing in and the FEES you may or may not be paying.
3. Invest
If investing in your retirement account is a little too boring for you, there are other investment options for you to consider. You can go the traditional route and invest in stocks or mutual funds. Check out RobinHood investing for fee-free investing. Or, you can invest in the following, more unique, options:
Robo-advisors
Investing is complicated and most of us just don’t want to think about it. Luckily, in our technological age, we don’t have to.
Robo-advisors are diversified account investors that use a complex algorithm to best manage your investments. Note that you will need to pay fees for the robo-advisor, but those feels will be substantially lower than fees you’ll pay for a financial advisor.
Your tax refund will be more than enough (depending on your income and the size of your portfolio, of course) to cover the fees.
Betterment, Wealthsimple, and Wealthfront are our top picks for robo-advisors, but there are many more to choose from. We are currently testing each service and will give you a full year-long review of them soon.
Real estate crowdfunding
Real estate crowdfunding is similar to other crowdfunding (think GoFundMe), except they offer investors the opportunity to lend money to other investors looking to purchase real estate.
Crowdfunding as a whole is growing, and there are a few reputable companies that allow you to invest in real estate for just $1,000.
Fundrise, a company started back in 2012, has a minimum investment of $1,000 and offers commercial real estate investments such as apartments and office buildings.
Bitcoin (and other cryptocurrencies)
While we definitely don’t advise that you invest your money in cryptocurrencies, we do want to present you with the information you’ll need in case you decide to take that dangerous route. Bitcoin is still on the rise. With more and more retailers accepting Bitcoin as a legitimate currency, you can now actually use your bitcoins.
Or, you could buy and sell when Bitcoin surges in price—which is what many people do.
But be warned, there are risks since cryptocurrencies are so volatile.
As of this article, cryptocurrencies are extremely volatile and many government agencies around the World are cracking down on Initial Coin Offerings (ICOs). Do your research before you start the crypto journey.
Investment Apps
There are plenty of apps that invest your spare change. Now you don’t have the excuse that you don’t have enough money to invest.
Stash is an investing app that doesn’t just help you invest, but helps you invest in what you believe in. But, nothing good comes for free. Stash gives you a free month, then charges you $1 a month until you hit $5,000, after which they charge you 0.25 percent per year.
Acorns is Stash’s biggest competitor. It’s almost identical to Stash—fees and all. They’re less concerned with socially conscious investing, but they do want to invest based on your individual goals, I personally use Acorns and literally forget that I am investing on a daily basis. So far, we’ve invested nearly $2500 in our Acorns account and we didn’t miss a dime of that money. Rational people automate their life. Try it.
4. Open a savings account
We all want to impulse spend when we get our returns back, but putting your money in savings until you really need it is obviously a much better idea.
You have a few options when it comes to savings account. You can open one through a credit union or a larger bank, or you can opt for an online savings account.
There are many options when it comes to online savings accounts—all of which offer a better rate of return than traditional banks.
There’s the Capital One® 360 account, Discover’s Online Savings account, or Ally’s savings account to get you started. We use the Capital One 360 account and have several different sub-accounts for vacations, car maintenance, etc. It takes like 5 seconds to set up this account.
5. Pay off some debt
This is likely your least favorite suggestion since none of us want to think about our car, credit card, or student loan debt, but we all have to pay them back.
Luckily, there are a lot of plans to choose from when it comes to paying back your loans—even if the lenders don’t always make it easy. If you feel really compelled to put all of your return towards your student loans you could be on the path to repaying your loans within a few years! Check out balance transfers and refinancing. Don’t let your debt defeat you.
For the rest of us, however, using our $1,000 tax return will only pay of a small chunk of our debt. But, that’s still something!
Here’s our guide to paying off debt to help get you started.
Stay Rational.
-B&T