Better Ways to Invest Your Tax Refund Money

Did you get your tax refund money back yet? Did you know that the average person receives a refund of nearly $3,000? If you are receiving a check for three grand, what on earth do you plan on doing with that kind of money?

Investing Tax refund

I know some people would spend it foolishly by taking a lavish vacation in the Caribbean or for a season golf membership. I am not saying those are bad things, but there are plenty of better things that you can do with that chunk of change.

I got almost one grand back this year, mostly due to SMB’s tuition cost, which saved us few extra bucks in taxes.

How I invested this money?

As an experiment, I opened up a Prosper account. Prosper is a peer-to-peer lending company, that sources funds from public and loans out to individual borrowers.

I know many personal finance bloggers who are using peer-to-peer lending instrument, whether it’s Lending Club or Prosper doesn’t make much of a difference, all of ’em produce much higher return than a normal savings account rate or a long-term CD rate.

Not only peer-to-peer lending, there are various other good and prudent ways to invest your tax refund money. Here they are.

10 ways you can invest your tax refund money (ie. put it to good use!)

1)      Pay Off Your Credit Card – This isn’t the first thing you think of when you hear the words investment, but by paying off your card, you’re avoiding a mountain of interest, which is definitely a smart financial move.

No doubt, this should be your first choice if you have credit card debt. No investment can earn you that high interest you’d pay otherwise to the credit card companies. So this option should give you best value of your refund money.

2)      Purchase Index Funds – Notice I didn’t say mutual funds. Mutual funds aren’t a bad investment, but they almost always come with high fees. Avoid those fees by investing in index funds instead.

Last year, it was my investment with the tax refund money. I bought SDY and I am not at all repenting! CNN lists top funds for investors, which I’d rely on.

3)      Put It Into Your High – Yield Bank Account – Did you know that many credit unions are offering 3 or 4% interest on your checking account? If you add $3,000 to your savings total, you could be earning an easy $120 for the year!

4)      Purchase Junk Coins – Do you know what junk coins are? Mainly, they are coins that are worth more than their face value because of what they’re made of. When I think of junk coins, I think of quarters that were minted before 1965. Since they’re made of 90% silver, they are worth about $5, rather than the 25 cent face value.

Even I may go for buying a gold coin if gold price drop further. After the recent drop (as of May 2013) gold, to me, is coming back to investment list.

5)      Start Your Own Business – Did you know that a website can be started for just $40 in your first year? There is hardly any risk, and there is a huge upside to the possibilities! you can start a home based franchise with as low as $5,000. Here’s Inc. guide to home based franchise.

6)      Give Your House a Makeover – If you’re thinking about selling your house, don’t be afraid to put some of your refund money toward sprucing the place up. Just $2,000 can go a long ways and it can spark an interest in your house that could get you more than $5,000 of your asking price.

7)      Invest in an Annuity – If you’re nearing retirement age and you’re sitting on a lump-sum of money that you’re not sure what to do with, consider buying an annuity. It will provide you with the cash flow you’ll need to survive from month to month, and it will even pay you interest.

Although I personally will never buy annuity given it’s expected rate of return I still can recommend it to people looking for stable and risk free retirement income. Here are some best practices of Annuity Investment.

8)      Invest in Real Estate – I absolutely love the idea of investing in real estate. I realize that $3,000 isn’t going to buy a house, but if you already have some money saved up, maybe that three grand will help make your first purchase. If you find a property that would yield an immediate positive cash flow, I would recommend thinking about it very seriously. Once that mortgage is paid off, real estate investing is a breeze.

Another way is to invest in REITs. In our area (South Florida) property prices went up by 20% compared to last year. I am not specilating here, but I honestly believe real estate can only go up from here. Don’t hang me if it doesn’t though.

9)      Invest Overseas – If you have some friends within a different country (preferably one with a stable economy), you may want to purchase some property there. Our economy isn’t completely bleak yet, but it’s getting there, and it might be wise to have a fallback plan. I have a real estate property in India and my parents are asking to buy one more and rent it out.

10)   Invest in Yourself – If you’ve always want to further educate yourself by going back to school, I would say go for it! If you obtain a degree in your line of work, you’ll almost certainly be in line for a raise. If you think your tax refund money can’t fully cover such expense. Here’s list of online courses offered by an institution like Harvard. Price ranges between $1500 to $5000. You can afford such edution

If you have invested your tax refund money, do let us know what you did.