January 23rd has marked a start of the tax filing season. A decade ago most people considered it their worst time of year, but not anymore. This year, Americans expecting to get tax refunds have embraced tax filling with enthusiasm. Last year, the IRS announced that 83 percent of those who filed tax returns got refunds. A total of $125 billion was refunded with the average beneficiary getting around $3,120.

Maximizing Your Tax Refund Money

According to the IRS, the number of beneficiaries and refund amounts are projected to increase as Americans get a better understanding of tax deductibles they can claim. However, most people tend to splurge the refund on trivial things that do not improve their financial position. To avoid such financial relapse, here are 3 ways to spend Your tax refund wisely.

6757821397_ba181435ea_b

Payoff High-Interest Debt

If you have any high-interest debt, your tax refund money can be a welcome reprieve. This will give you great returns than other options because paying off the pending balance you owe to your Credit Card Company brings down the interests. Depending on the interest rate, you will be able to save from 10 to 29 percent per year in interest, from the pending balance that you manage to clear. A simple math of taking your tax refund to pay out a loan that you have not been able to clear will see you save thousands of dollars.

However, if the tax refund is not enough to clear these debts, you can use it as a bargaining chip to get your credit provider to refinance the loan.

Invest The Funds

If lack of funds has always hindered you from making investments, you can use your tax refund money as capital. Opening an IRA and investing in stocks has shown significant tax-deferred growth on any amount invested. Any IRA growth is treated as a capital gain as it reduces the taxes you’re required to pay from the proceeds. You can also look at trading stocks actively but you should look at some trading guides before jumping in.

Additionally, if you are in the 35 percent marginal tax bracket or higher, an investment of around $3,000 in an IRA guarantees an additional $1,050 tax refund the following year. The IRA boosts your refund from $3,000 to $4,000 without any lifestyle changes. Furthermore, you will enjoy more blissful retirement years while your stock portfolio improves.

5857156048_0fb35a8266_b

Save In An Emergency Fund

Life constantly throws financial surprises our way, but many people still understate the importance of an emergency fund. An emergency fund can help survive for a few months when you lose your job without incurring additional debt.

Car trouble can strain an already tight budget. Even if you have decent health insurance, there is a limit to what insurance companies are willing to cover, and an emergency fund can help fill the gap. You can quickly fix the problem by dipping into your tax refund money.

Bottom Line

Proper financial planning can ensure that your tax refund money contributes to your long-term financial well-being. Paying off high-interest debt will save you money in the long run while contributing to your emergency fund will give you peace of mind. Investing in the stock market can help you get ready for retirement and is better than having your money sit an bank account doing nothing and collecting next to no interest.

Ross Cameron is a full-time day trader and owner of  Warrior Trading which he founded in 2012 as a live trading chat room emphasizing education and idea generation. In 2014, he began teaching day trading classes, taking a break in 2015 to write a best-selling book How to Day Trade, which can be found at Amazon, Barnes & Noble, and other booksellers. Day trading allows Ross to travel and bring his work with him. Today he continues to trade in his chat room and teach trading courses, and lives with his family in Vermont.