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Tax Refund: How You Can Invest and Grow Your Money

Tax refunds are starting to come in for Americans across the country. How are you planning on spending yours?

According to the IRS, the average tax refund for 2022 is currently hovering around $2,323. There are multiple ways you could maximize this return.

Investing With Your Refund

What you’ll be able to do with your tax refund is largely based on your situation. However, if you can, investing is the way to go. There will always be risks with investing. But for some, the risk might be worth the payoff in the end.

Experts recommend investing in index funds rather than individual stocks or cryptocurrencies. And if any teens or young adults in your household are investing in those things, make sure you’re aware of the tax levies that come with that.

Back to index funds: they’re much safer than other forms of investing because they’re made up of a variety of assets. The performance of an index fund is based on how well its benchmark is doing. For example, an index fund like the S&P 500 will give you a 10% annual return rate.

Based on that rate, we can calculate how much your tax refund investment could be worth. If you got the average tax refund of $2,323 and deposited the whole thing, your index fund investment could be worth a whopping $6,025.26 in 2032. That number is if you don’t put any other money in there, of course.

You could also put your tax refund into a high-yield account. It’s safer than an index fund. On the flip side, you’ll make less money this way. You’d still make more money compared to a traditional savings account, though. According to The Sun, a high-yield account will typically pay 20-25% more in interest rates.

Most Americans Already Have Plans For Their Tax Refund

If you’re not planning on investing, don’t worry. Most people aren’t. According to a recent survey done by Bankrate, most Americans already have plans for their tax refund. The survey found that 55% of Americans will be using the money to pay down debt or to cushion their savings.

Of the remaining 45%, roughly 12% of people plan to use the money to take care of day-to-day expenses. 10% plan to use their tax refunds to make home improvements. Only 7% of people plan to invest their money. Using the tax refund as pure spending money is the lowest percentage in the survey. 4% will use the money on vacation, and 2% will use it to splurge on retail purchases.

According to experts, spending your refund on debt is one of the smartest things you can do. Interest rates are high, and are likely to get higher due to the Federal Reserve’s plan to hike rates. The average credit card balance is a little over $5,000. If you get at least the average refund of $2,323, you’ll be able to pay off a good amount of your debt.