What Should I Do With My Tax Refund?
Spring is in the air…
As is pollen, grass and the end of tax season.
Now, I could do without the histamine-inducing gifts from Mother Nature.
But at least there’s a refund to look forward to.
Tax refunds are like free money… and that can feel like justification for a splurge.
But there are much better uses for your newfound cash.
And that’s what we’ll go over today.
Also Known as Capitalist Slavery…
Hopefully, you’re one of the 62% of consumers who can expect a tax refund in 2021.
The average refund for the 2020 tax year was $2,707 per return.
Now, that’s probably not going to pay off your mortgage… but it’s not negligible either.
$2,707 is more than enough to make a difference.
Especially when it comes to debt.
An American family holds an average of $6,270 in credit card debt. And the worst part is that the lower your net worth, the more you owe as a percentage of your total assets.
Once you’re in the clutches of a credit agency, it’s extremely difficult to get out. That’s no surprise considering today’s average credit card interest rate (also called the annualized percentage rate) is 16.15%.
So with a $6,270 debt and realistic payments of $150 a month, it would take 62 months (more than five years) to pay off that debt in full…
And you’d have to cough up an extra $3,007 in interest.
But let’s say this average refund was applied to the average debt…
That would bring your balance owed down to $3,563.
Even if you pay off your credit card every month, there are still car payments, student loans and mortgages – potentially totaling hundreds of thousands of dollars.
And if you’ve ever lost your lunch over a full amortization schedule, you know that interest is the silent killer. At the end of my 30-year mortgage, I would easily be able to afford a second home with the amount that I’ll have paid in interest.
So it’s easy to see why the No. 1 purpose for your tax refund should be to pay down debt.
Now, let’s say you’re the perfect human and have zero debt to pay off.
You own your house and car outright. You pay your bills. You haven’t so much as borrowed $20 from a friend…
The next step would be to secure your emergency fund.
Many experts and advisors suggest keeping three to six months’ worth of expenses in a rainy-day fund in the event of a big life change, layoff or global pandemic. (But that couldn’t happen, right?)
This money is not to be touched for bills, everyday expenses or vacations. And it shouldn’t be invested in the market either.
This is liquid money that you could withdraw at the drop of a hat. Just stick it in a high-yield savings account and let compounding interest work in your favor for once.
Beyond sticking it to interest rates and securing your “flee the country” go bag, the next best thing to do with your refund is, of course, to invest it.
That’s where The Oxford Club – and our world-class financial gurus – comes into play.
So keep reading Profit Trends every day for all the latest market opportunities and investing research.
You’re on the right path.
P.S. 2020 tax refunds have been delayed due to the pandemic. To check the status of your return, go here.