This fintech company wants to help you decide how to spend your tax refund

by Jess Ryan
April 15, 2016

While some of us may have pushed filing our taxes to Monday’s deadline or will need to file an extension (whoops), many of you are totally on top of things — and you’ve already got that sweet, sweet refund check in hand.

 

We spoke with one of the pros at fintech company

about how people usually spend their tax refunds — and what they could be doing differently. Kyle Ryan, Head of Advisory Services, leads a team of financial advisors for the company, which handles more than $2.2 billion for clients using their portfolio management services and tracks more than $225 billion in assets for people using the app’s free dashboard.

Ryan said the way people spend their tax refunds depends on how they already view money. “People view it as ‘found money’ and either make the decision to do general consumer spending, or to do something financially savvy with it,” he said.

People who see this “found money” as a short-term bonus tend to buy things they wanted to but didn’t originally have the money for, said Ryan. They buy a new TV, take a big vacation or go out to eat more often.

Ryan said other people see it as a way to contribute to their financial health. They’ll make longer-term decisions, like paying down debt and making investments.

When it comes to making those long-term investments, Ryan said there’s a pretty defined hierarchy of which decisions should be tackled first.

“Anything that’s approaching a 10 percent interest rate, like credit cards or student loans? Pay that down,” he said. Some investment portfolios have high yields, but that investment won’t be worth it for someone who has a lot of debt.

Next, people should save for a “rainy-day” fund — true emergencies, like medical issues or loss of a job. Ryan recommended opening a high-yield savings account for that fund. Most savings accounts have super low interest rates right now, so even something close to one percent could be helpful. Ryan recommended saving enough to be able to live comfortably for three to six months without making any lifestyle changes, so it can be stretched longer if necessary. “Having that is a great bedrock for every financial plan,” he said.

Once those two steps have been taken care of, Ryan recommends investing in a long-term portfolio, whether that’s an IRA or an after-tax brokerage account. “Investing in long-term financial health will help you eventually meet those longer-term financial goals,” he said. “It’s a really powerful step young professionals should be taking.”

Ryan said Personal Capital — which is based in California but has grown substantially in Denver the last two years — has a mission of bettering financial lives through the combination of technology and people. Their free financial dashboard is available to anyone, and currently has more than a million registered users. Ryan said whether someone is just getting started taking care of their financial health, or they’ve got millions of dollars in investments, Personal Capital is a great tool to view net worth. “It’s difficult to go on a weight loss plan if you never step on the scale,” he said. “It’s the same with financial health.”

For individuals with more than $25,000 in net worth, Personal Capital also provides financial advice through their technology and license financial advisors. People can set up a free consultation, and then pay Personal Capital to manage investments for them.

While Personal Capital’s focus is more on the investment side, people with significant debt or who are just getting started with their financial health can still benefit from using the app. It integrates with Zillow for homeowners, and the app even integrates with major student loan servicers like Navient, so users have a more holistic view of their financial health. And for startup employees, Personal Capital’s custom-built stock option tool lets people track their vesting schedule.

Whether you choose to splurge a little after getting that refund check or use it to pay off some student loans, Ryan said in reality, doing a little bit of both is probably best for most people. “At a high level, your money is meant to help you live the lifestyle you want.”

Ryan said it’s best to have a bit of a balance. “10 to 25 percent of the refund can be something fun, fixing things around the house or making charitable contributions — which happen to be a tax deduction,” he said. “The lion’s share should be invested in long-term financial health.”

 

Photos via Personal Capital

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