Dominique Broadway explains that a tax refund means you over-withheld and lent money to the government. She walks through six steps: adjust your withholding, assess your finances, build an emergency fund, pay down high-interest debt, open a brokerage account, and use dollar-cost averaging to invest consistently.
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Hey, it's Dominique Broadway, award-winning personal finance expert and the founder of Finances Demystified. And today I'm back with another episode of Ask Dominique. So I'm going to take a question from one of my team members. Let me know, what can I help you with? I was actually wondering, what should I do with my tax refund? Hey, it's tax time. You ready to get this big tax check back, right? Direct deposit. All right. So if you are getting a tax refund, the first thing that you want to do is figure out why are you getting a tax refund? Because believe it or not, you're not supposed to get a tax refund, meaning that when you're getting a tax refund, that means that you literally lent money to the federal government for a whole year. They made money off your money, and then they paid you back at the end of the year. So ideally what you want to do is start reviewing your tax situation and seeing if there's opportunities for you to start getting that money throughout the year. So look how amazing it would be if you could get another $200, $300, $400, $500 a month every month instead of getting a larger check at the end of the year, right? So that's the first thing you want to do. Figure out why you're getting a tax refund and see what adjustments you can make so that you can get more money back every month so you can have your money actually growing for you instead of for somebody else. Okay. The second step is review your current financial status or situation. So this is a good time around tax time to really just kind kind of see where you are currently financially. Do you have any money saved? Do you have any debt? Do you owe anybody? You know, do you have any investments? Do you have any big financial goals? Because this, with the tax refund check that you're receiving, this may be a great time for you to just simply take that tax refund and add it to your emergency fund because you're like, look, my emergency fund is lacking. I need to start building it up, right? So that's one thing you can do when you're starting to really just kind of analyze your current financial situation. The other thing you want to do is think about your debts, right? So if you have a bunch of debts, using your tax refund to pay those debts off can be really good. So look at your debts, see how much this debt is costing you every single month. If this debt is costing you a lot of money, this may be a good time to take your current tax refund and drop it straight to your debt so you don't have to worry about that debt that's costing you money every single month. Okay, step 4, start investing. So if you figured out like, look, my emergency fund's looking good, I paid down my I'm ready to start making this money grow. This can be a great time of year to start investing. So how do you do that? The first thing you want to do is open a brokerage account, right? So this can be through E-Trade, Webull, Robinhood, and we'll include some links below to all these different accounts so you can get some bonuses that they're currently offering. But this could be a great time for you to actually start investing. What do you invest in is probably what you're asking. So you can take your tax refund and you can start investing into stocks, right? And if you follow me, you know that I I love investing into companies that I already use, right? So if I have an Apple computer right here, I might invest in Apple. If I love Chipotle, I might invest in Chipotle. If you're like me and you get Amazon packages delivered to your house every day, it might be a good time to invest in Amazon, right? So start looking at different stocks, mutual funds, things like that. We have other videos that go into the details of what all those are, but this may be a great time to actually start investing into those things. Also looking into crypto, right? For some people, this could be a great time to take some of your tax refund and start investing into Bitcoin or Ethereum or Dogecoin, right? Now, obviously with all of these investments, you want to make sure that you are comfortable with potentially losing whatever it is that you are investing. All right. So looking into crypto as well. Another thing that you can invest in is real estate, right? So the real estate market is insane right now, right? So this may be a good time to take your tax refund and use it to start investing into a whole house, right? A condo, or maybe if your funds aren't quite there yet, maybe even using your money to invest in REITs, which are real estate investment trusts that allow you to invest into homes without having to actually go and buy the house. And I have another video on that as well in the YouTube channel. So the last thing that I would add if you're thinking about investing is doing a simple strategy that we call dollar cost averaging. So when you dollar cost average, you literally take a set amount, the same amount every single month. So example, you may say, hey, I have a $300 tax refund. I'm going to take this $300 tax refund and I'm going to invest $300 this month and then $300 next month and the following month and the following month. This strategy is called dollar cost averaging. This allows you to start being able to accumulate tons and tons and tons of stock over time, right? So with this strategy, you're not necessarily trying to time the market. You just have something set where you're literally buying the same investments every single month, right? And by the end of the year, you hopefully have accumulated tons of stock. So those are some of the things that you can do to take your tax refund, hopefully turn it into something a little bit more than it already is. So hopefully you enjoyed this video. For more free financial game, please make sure that you use the link below to join one of my free investing masterclasses or use any of the other links to learn more about some of the free financial knowledge that I love to share. And most importantly, Make sure you subscribe and of course share this wealthy information with a friend. See you soon.
