money Tax refund: Explained
You know what time of the year it is – it's tax time. Did you know that more than 70 percent of Americans actually get a tax refund? So it's only right that we talk about what it really is and what to do with it. Ross Mac of Macenomics joins Yahoo Finance to break down your tax refund.
Tax refund is actually your money (00:00:13)
A tax refund isn't just a magical bonus that the government was feeling generous about giving you. It was actually your money in the first place. You were just paying the government too much in taxes the prior year. Yes, you were giving the government an interest free loan. So before you try to take that money and actually make a real big purchase, you should ask yourself, would you have made that purchase the year prior? Exactly. So let's actually talk about what you should do with it.
Emergency expenses (00:00:36)
Because the average American can't afford a $1,000 emergency expense, Mac recommends putting aside $1,000 for those type of emergencies.
Credit card loans (00:00:45)
Next, Mac suggests you pay off those high interest credit card loans. This is the opportunity to stop paying those very tempted minimum balances and get rid of it once and for all.
Emergency fund (00:00:53)
Then, Mac recommends you set up a fully funded emergency fund. This is defined as three to six months of your necessary expenses. Think rent, utilities, groceries, etc. Mac suggests you take that money and put it in a high yield savings account.
Consider investing (00:01:06)
Finally, consider investing. This is your opportunity to start building true wealth. Let your money actually work harder for you, rather than you work for it. The best way to approach investing is by purchasing the index fund. Most commonly, Mac recommends the S&P 500 (^GSPC).
Video Transcript
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ROSS MAC: All right, people, you know what time of the year it is, it's tax time. Now, did you know that more than 70% of Americans actually get a tax refund? So it's only right that we talk about what it really is and what to do with it.
Now, look, first things first, a tax refund isn't just a magical bonus that the government was feeling generous about giving you, it was actually your money in the first place. You were just paying the government too much in taxes the prior year. Yeah, guys, you were giving the government an interest-free loan.
So before you try to take that money and actually make a real big purchase, you should ask yourself, would you have made that purchase the year prior? Exactly. So let's actually talk about what you should do with it.
And because the average American can't afford a $1,000 emergency expense, I recommend us starting there. Let's put aside $1,000 for those type of emergencies.
And next, I want you to pay off those high-interest credit card loans. Now, this is an opportunity to stop paying those very tempting minimum balances and get rid of it once and for all.
And once you're out of that high-interest credit card debt, I want you to now set up a fully funded emergency fund. Now, guys, this is defined. As three to six months of your necessary expenses. You know, think rent, utilities, groceries, et cetera. And I want you to take that money and put it in a high-yield savings account.
And lastly, I want you to consider investing, guys. This is your opportunity to start building true wealth. You know, letting your money actually work harder for you than you work for it. Now, the best way to approach investing is by purchasing an index fund. Most commonly, I recommend the S&P 500.
It's your boy Ross Mac, and this is Maceconomics for Yahoo Finance. [MUSIC PLAYING]
