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Collins Community Credit Union

How to Wisely Invest your Stimulus Payment or Tax Refund

With stimulus payments and tax refunds potentially coming to most Americans, many may be dreaming of how they’re going to use the money.

Published on Apr 09, 2020

Some will get caught up on bills, others will book a vacation, some may pay off a credit card, and many will blow their refund on movie tickets and gardening supplies. However you choose to use your funds is up to you, but we have a few suggestions to make them go far.

Whether you receive $1,200 or more, here are some ideas to smartly invest what you got back.

Eliminate Debt. Whether you have a credit card with a balance or a car loan with several payments left on it, applying your funds to that debt will help free up cash immediately and permanently. If you’re making a payment of $75 toward your credit card each month or around $250 for your car payment, paying off one or both of those debts can save you from $900 to almost $4,000 annually. Apply funds to your liability, improve your credit score, and keep the payments you would have made in a separate savings account.

Open a High-Yield Savings Account. High-yield savings accounts offer higher interest rates, which means, over time, your money can grow exponentially. Though financial institutions are offering lower interest rates during the COVID-19 outbreak than they usually do, their rates are still higher than standard savings accounts. These accounts are perfect for long-term savings but offer the flexibility to withdraw your money on your terms. You can also invest your dollars through a certificate of deposit, which doesn’t allow you to access your money for some time but will help you increase your investment.

Start an Emergency Fund. COVID-19 has shown that having money stashed away is incredibly important. Many Americans can’t afford car repairs or a medical emergency, let alone the loss of household income. Some are facing unemployment and don’t have enough savings to cover a month of expenses. We won’t always be amid a pandemic, but even after the threat of the novel coronavirus passes, having an emergency fund can be very beneficial for your financial security. If you suddenly must repair your dishwasher or fix a roof leak and those items aren’t under warranty, you’ll be so thankful you have money saved up to afford the damages.

Invest in an S&P 500 Index Fund. The average annual rate of return for an S&P 500 Index Fund, which is low cost and tax-efficient, has been about 11% for the last seven decades. If you put in $3,000, for example, in 20 years you would have over $24,000!

Use It for Your Job or Business. To help advance your career or improve the offerings of your company, you can use your funds to enroll in a course, attend a conference, or build capital. Making this investment in yourself now can increase your earned income later.

While it would be fun to splurge on a few items you really want to buy, investing the dollars you receive this spring will significantly improve your financial health for years to come. And hey, maybe next year you could get that fishing pole or laptop you’ve had your eye on.

 

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