It’s tax season! Time to think about how best to spend your well deserved tax refund. While most financial advisers suggest practical ideas, such as paying down debt or building up your emergency fund, there are ways to use your tax refund as an asset that can benefit your in the long-term rather than just spending it, thus turning your cash windfall into a liability. Here are 10 ways to spend your tax refund and “make your money work for you” building assets:
1. Open a savings account. According to BankRate.com, less than 50% of American consumers have a savings account. Opening a savings account is easy. Just visit your local bank or credit union and ask the teller about opening an account. If you already have a savings account, you should consider depositing as large a portion of your tax refund in it as possible. You’ll thank the process of “compound interest” for the financial windfall later.
2. Open a Money Market Account (MMA). MMAs are basically high-interest savings accounts that require a larger deposit (around $1,000) to get started. MMAs are a good way to stash away cash for your emergency fund and get paid a reasonable return on interest in the process.
3. Buy a Certificate of Deposit (CD). If you’re looking for a way to build up your savings while keeping “hands off” your cash, a Certificate of Deposit (CD) might be a good way to go. CDs come in various denominations, each with a specific “maturity date” when withdrawals can be made. Contact your local bank or credit union for complete details.
4. Start an IRA (Traditional or Roth). Anyone 18 or older and open an Individual Retirement Account (IRA). Visit your local bank or credit union and ask to speak with a financial manager to see how an IRA can help supplement your income in retirement by “paying yourself first” while you work.
5. Open a 529 plan. A college education is an important investment for your child, but financing a college education can be expensive. You can minimize the cost by opening a 529 college savings plan for you college-bound child or grandchild. Contributions reduce your taxable liability while distributions toward tuition and school expenses are tax-free.
6. Make home repairs/improvements. Your home is your largest asset. You can help maintain its value by using your tax refund to perform DIY home repair projects or contract out for larger projects, such as a room addition. If the home repair/renovation project meets federal energy efficiency standards, you could qualify for a tax deduction. Once home improvements are complete and your home increases in value, you’ll thank your contractor and your appraiser.
7. Make an extra mortgage payment. One extra payment a year toward the principle of your home can reduce the number of payments you’ll make over the life of the loan as well as the amount of interest paid. The sooner you pay off your home, the more money you’ll have available during retirement and that could make the world of difference in your golden years.
8. Buy stock. Whether a novice or experienced trader, buying stock as a hedge against inflation is always a good investment. Many online brokerage firms, such as eTrade, Fidelity or TD Ameritrade are good places to start. Ensure to ask the broker about how to start a monthly stock buying plan.
9. Buy government savings bonds. Buying government bonds is easy and very cost effective. Just visit www.TreasuryDirect.gov to get started. Unlike savings bonds of old, today’s savings bonds are purchased at their full face value depending on the denomination, mature faster (minimum, 1 year) and can accrue interest for up to 30 years. Government savings bonds may not be an ideal investment option when interest rates are low, but as rates increase investing in bonds becomes more inviting – and more lucrative in the long-term.
10. Start a business. Start-up capital is always a deterrent to entrepreneurship, but these days you can start a (homebased) business with less than $1,000. And who knows…if you work hard enough at your side hustle maybe it will transform into the greatest investment you’ve ever made in yourself.
There you have it – 10 asset building ideas using your tax refund you can put to use right now. Instead of treating your refund as a liability, why not treat it as an asset and put it to work making money for you? When those Benjamin’s start stacking up, you’ll be glad you did.
Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations. Follow him on Facebook and Twitter.