Torn between spending, saving, or investing your tax refund? That’s a tough but important decision that could benefit you significantly over time.
Having extra cash at your disposal is always a good thing. However, investing your tax refund is a financial decision you definitely won’t regret. Which path should you choose?
Decide Where Your Money Needs To Go
Before deciding how much of your tax refund to invest, take a closer look at your financial health. Are your finances in decent shape, or do they need a little help?
Can you afford to deposit your entire refund into an investment account, or do you need to prioritize a few financial nuisances like credit card bills?
Consider paying off high-interest credit cards or getting current on all your past due accounts with your tax refund. If you owe a debt that’s on its way to collections soon, pay it off or propose a settlement offer to the creditor to prevent it from landing on your credit report.
Once you’ve created a list of priorities, use what you have left of your tax refund to invest in your future.
Benefits of Investing Your Tax Refund
Here are some great reasons to invest your tax refund.
1. Grow your money passively.
Does the thought of managing investments make you cringe? It’s possible to invest your tax refund without being completely hands-on. If you have no clue how to initiate trades or handle investment accounts altogether, or don’t have the time, let a managed investment account do the legwork for you.
Don’t know where to start? MoneyLion offers a viable option to help grow the proceeds from your tax refund passively. We take the hassle out of investing by managing the entire process, and there are no hidden fees. Even better, you can continue to add money over time to the managed investment account with simple auto investing, or recurring deposits that you don’t have to think about.
2. Capitalize on compounding interest.
Allow compounding interest to work in your favor by investing your tax refund. If you’re unfamiliar with the term, compounding interest is simply the interest that accrues on top of interest.
So, if you invest your tax refund, the initial deposit will begin to accrue interest right away. And over time, that interest will also earn interest, and so on. This cycle continues to perpetuate itself until you remove the funds from the investment account.
How do you maximize earnings from compounding interest? Your investment strategy will play an integral part in the equation. If you decide to go with a managed investment account, you’ll have the opportunity to select your investment strategy and make adjustments as needed.
3. Build a healthy stash of money.
Life happens, so you want to create an emergency fund that’s easily accessible. But what about larger financial emergencies or projects that your emergency fund can’t take care of? This is another critical reason why investing your tax refund is a smart money move. As mentioned earlier, you can grow your money passively while allowing compounding interest to work in your favor.
If the time does come where you need to cover a hefty expense, you can have peace of mind knowing that you have the funds in an account you can make withdrawals from.
4. Boost your nest egg.
Retirement is supposed to be one of the bests time of your life. Even if you have many years to go before you reach the golden years, it doesn’t hurt to take care of your future self now by making a bonus contribution to your nest egg with your tax refund.
Haven’t quite gotten around to setting up a retirement account? Reach out to a reputable financial advisor to explore your options, or consider a managed investment account. The latter affords you the flexibility to start saving for the future without the restrictions that may accompany retirement accounts. Plus, you can access the funds whenever you’d like without worrying about penalties and taxation.
Remember, it’s never too early to start saving for retirement. The sooner you start making contributions, the more time you give compounding interest to grow your money.
5. Meet financial goals faster.
Have larger than life financial goals you’ve tried to meet for quite some time? Use your tax refund to get a head start.
Whether you want to save for a car, home, vacation or downpayment on a new home, you may be better off investing the money to meet your goals faster. There’s always the risk of loss, but it beats letting the money sit in a savings account with minimal returns. And you can choose an investment strategy with minimal risk.
Invest Your Tax Refund with Confidence
Be smart with your money this tax season. Maximize your refund with a managed investment account from MoneyLion. It only takes a few minutes to set up your account and choose your investment strategy. There are no fees to invest, and you can take the hassle out of making contributions with recurring deposits.
Not anticipating a tax refund? You can still get started on your investing journey with as little as $1.