It’s hard to believe we’re rapidly approaching tax season and some of us may be getting tax refunds. Here are some ways for the people who get a tax return to use that money to further their financial gain. This is not a top 10 list nor is it in any order, it is just a few great ideas to make money with some extra cash.
- Open a Roth IRA.
The Roth IRA has a lot of benefits associated with it. The money in your account will grow tax-free and remains untaxed when you take out your contributions. The one problem with this is that you cannot access this money until you reach retirement age without receiving a penalty.
If you put in $1,000 at 25 years old, never added another dollar to it, and took your money out at 65 with an average annual rate of return of 7%, you would have $14,974 tax-free.
Should you do the same thing at 30 years old, the money you would take out at 65 with an average annual rate of return of 7% would be $10,677 tax-free.
You can also check out my article on the difference between a Roth and Traditional IRA for more information on this subject.
- Put your money into a high yield savings account.
This may not be anything glamorous, but it is consistent. I highly recommend doing this for an emergency fund. Putting your money in these accounts leaves your money safe and easily accessible. If you put $1,000 into this account, usually at a 1.5% annual rate of return, you would be looking at $15 dollars in your pocket at the end of the year.
Let’s say you put in $1,000 at 25 years old and never put another dollar into it. When you take your money out at 65, with an average annual rate of return of 1.5%, you would have $1,684 – but this money would not be tax-free. Each year you would have to pay taxes on the interest earned.
- Become a peer to peer lender.
Have you ever wanted to be a bank? Well, you can act like one with peer to peer lending sites like Prosper and Lending Club. You can choose to lend to people that you want to based on their credit score and loan reasons or just have them automate the loans for you. I have seen wide returns from 4% – 14% annually. Of course, just like any loan, your clients could default – so there is some risk. The good news is that you are allowed to put in as little as $25 dollars per loan, which mitigates your risk factor. So, if you placed $1,000 into one of these lending portfolios, you could potentially walk away with $40 in your pocket conservatively at the end of the year.
If you put in $1,000 at 25 and never added another dollar, you could take your money at 65 with an average annual return of 4% and have $3,262. This money is not tax-free, though, and taxes would be paid on the interest earned.
- Invest in some cryptocurrencies.
Cryptocurrencies could be the future of money. Cryptocurrencies have been profitable over the past few years, but they can be very volatile as well. This can be seen in the recent drop of bitcoin from $20,000 a coin in December 2017 to nearly $10,000 in early January 2018. Personally, I have put some of my own money into a few of these currencies that I like. Though I wouldn’t recommend it to anyone who doesn’t believe in them or knows little about them. If you would like to know more about them, check Cointelegraph.com. The cash I have placed into these cryptocurrencies is currently earning me a 25% annual rate of return, which is pretty good. If you put in $1,000 and have it grow at 25%, you would be putting $250 in your pocket at the end of the year. You would have to pay taxes on these gains, though. If you would like to purchase some cryptocurrencies, I would try CoinBase.
- Open your own online store.
That’s right, you can start your own store and sell products to make money on them. You can really sell anything you want. I would recommend using a site like Shopify, which is a website hosting service that allows you to make an online store. It has a variety of plugins and apps that allow you to do a lot within the site. You can do anything from automating orders to recovering abandoned carts via email. Best of all, the startup costs are low and the potential upside is high. You could be selling wholesale items with great margins or creating your own products and selling them online.
- Start a blog.
Yup, you can make money blogging. It doesn’t take a lot of cash to get started and if you put in some serious work you can make some serious money. There are multiple bloggers making thousands of dollars per month. With advertisements and commissions, you could make some money for your thoughts – as long as you’re content and marketing is good. This does require some work, but in time you could possibly make a substantial second income. Check out WordPress to start your first blog. It has an easy user interface and is fully customizable.
- Bulk buy stuff you will need throughout the year.
You can turn saving a few bucks into saving some serious cash if you buy things you would normally buy all year in bulk. Heck, even the owner of the Dallas Mavericks, Mark Cuban, does this. Cuban has said “it’s so hard to make a return on regular investments that … you’re better off buying two years’ worth of toothpaste when it’s on 50 percent discount,” he says. “There’s an immediate return on your money.” There is some truth to this. If you buy large quantities of items you are going to use frequently, you can save lots of money – perhaps even 50% like Cuban said. If you can’t generate profits, then cut some cost!
- Real-estate fund
Have you ever wanted to own your own property and collect those sweet rent checks from your tenants? You can still collect sweet checks without having to fix some toilets when investing in a real estate fund. If you invest in a real estate investment trust like Fundrise, you can just earn income on your initial investment. Companies like Fundrise have earned their investors 9% to 12% annually. So, if you put $1,000 into Fundrise, you could be looking at $90 in your pocket. This is minus taxes at the end of the year, which are at the low end of historical returns.
Not sure how the whole investing thing works, but want to invest like a pro? Get an ETF that follows an index fund like the S&P500 and make money with the market. The real return for the S&P500 since its inception has been adjusted for inflation and is around 7%. So, 7% on average per year isn’t too bad. If you invested $1,000 at 7%, you would walk away with $70 bucks in your pocket at the end of the year minus taxes. For more information on ETFs, read The ETF Book: All You Need to Know About Exchange-Traded Funds by Richard Ferri.
- Invest in yourself.
My number one thought for investment is to invest in yourself. You are the money making machine, so why not use some of that money to upgrade yourself and learn something new? The money you spend learning something new will usually come back to you tenfold. So, try a class or join a webinar on a subject this year. You could also read a book or listen to one, especially if you don’t have a lot of time. Try Audible or read the book Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki – you will not be disappointed. Check out my article on what to invest in first for more info on this subject.
I have already covered a few of these subjects in prior blog posts and plan to cover them all in the coming weeks. So make sure you check us out every Tuesday and Friday for new content.
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