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5 Wise Ways to Invest Your Tax Return

Apr 11, 2016

Tax season is coming to a close and many are patiently waiting for their tax refund to arrive. When it comes to receiving a tax return, many people naturally feel as if they've been given extra money to spend. While a large tax return offers the chance to splurge in the moment, people should consider using the money to help prepare them for better financial security down the line.

Ways to Invest your Tax Return

For those who have received their tax return, but don't know the best way to invest it, here are a couple of smart ideas:

  1. Learn a new skill that benefits your career. Generally, spending less money can help improve your financial situation. You can also set goals to earn more money. Consider whether or not an online course or weekend conference will help enhance your career skills. Your improved talents can help earn you a promotion at work and eventually increase your weekly paycheck.

  2. Start an emergency fund. Many people, especially those living paycheck to paycheck, don't have enough money to build an emergency fund. A large tax refund can give you a great start. A general rule of thumb is that an emergency fund should eventually total between three to six months' worth of your living expenses. Even putting away a few hundred dollars is better than nothing. Getting started is the hard part. Once emergency savings are established, people often feel more motivated to continue growing that sum in order to prepare for unexpected financial setbacks in the future.

  3. Add to your retirement account. Nearly a third of working Americans have no retirement savings. Using a large portion of your tax refund for retirement contributions can give you a great return on your investments later in life.

  4. Pay off high interest debt. In the long run, it can be more expensive to carry a balance on a high interest rate credit card. Nationally, the average annual percentage rate (APR) is about 15%. Consider using your refund to pay down a high APR card and you'll soon be paying less in monthly fees.  

  5. Touch up your home. For homeowners who have been putting off fixes or projects, you might think about contributing funds to some reasonable home upkeep. Not only will you be improving the value of your house, but completing a DIY project is a great way to start off the spring and keep you feeling refreshed all-year round.

Erin Ellis
Erin Ellis
Accredited Financial Counselor
Philadelphia Federal Credit Union

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